Doctument of The World Bank Report No.24040 GUI PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 4.1 MILLION (US$5 MILLION EQUIVALENT) AND A GEF GRANT IN THE AMOUNT OF US$2.0 MILLION EQUIVALENT TO THE REPUBLIC OF GUINEA FOR A DECENTRALIZED RURAL ELECTRIFICATION PROJECT APRIL 22, 2002 Energy Team Infrastrecture Group Africa Region CURRENCY EQUIVALENTS (Exchange Rate Effective November 12, 2001) Currency Unit = Guinean Franc (GNF) I GNF = US$0.000529101 US$1 = 1890 GNF FISCAL YEAR January I -- December 31 ABBREVIATIONS AND ACRONYMS AFD Agence Francaise de Developpement AfDB African Development Bank AFVIP French Volunteers for Progress AGER Agence Guineenne dElectrification Rurale BERD Bureau dEEiectrification Rurale Decentralis&e BICIGUI Banque Intemationale pour le Commerce et Ilndustrie - Guin6e CRG Credit Rural de Guin6e CP Cornit6 de Pilotage DEF Direction des Eaux et Forets DNE Direction Nationale de I'Energie DRE Decentralized Rural Electrification EDG ElectricitM de Guin6e ENELGUI Entreprise Nationale d'Electricite de Guin6e ERU ElecticiO Rurale Decentralisee ESMAP Energy Sector Management Assistance Program FERD Fonds pour VElectification Rurale D6centralisee GJEF Global Environmental. Facility GHG Greenhouse Gas GoG Government of Guinea MHE Ministere de rHydrdulique et de I'Energie MFI Micro Finance Institution NGO Non-Govermnental Organization PDES Providers of Decentralized Electrification Services PERD Programme d'Electrification Rurale Dcentralis6e RETs Renewable Energy Technologies SHS Solar Home system SOGEL Socie6 Guin6enne d'Electricite STAP Scientific and Technical Advisory Panel UNDP United Nations Development Program VAT Value Added Tax Vice President: Callisto Madavo Country Manager/Director: Mamadou Dia Sector Manager: M. Ananda Covindassamy Task Team Leader: Noureddine Bouzaher GUINEA DECENTRALIZED RURAL ELECTRIFICATION PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 3 2. Global objective 3. Key perfomiance indicators 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Government strategy 4 3. Leaming and development issues to be addressed by the project 6 4. Leaming and innovation expectations 7 C. Project Description Sunmmary 1. Project components 7 2. Institutional and implementation arrangements 9 3. Monitoring and evaluation arrangements 17 D. Project Rationale 1. Project altematives considered and reasons for rejection 18 2. Major related projects financed by the Bank and other development agencies 18 3. Lessons leamed and reflected in the project design 19 4. Indications of borrower commitment and ownership 19 5. Value added of Bank support in this project 19 E. Summary Project Analysis 1. Economic 20 2. Financial 20 3. Technical 20 4. Institutional 21 5. Environmental 22 6. Social 22 7. Safeguard Policies 23 F. Sustainability and Risks 1. Sustainability 24 2. Critical risks 24 3. Possible controversial aspects 25 G. Main ConditLons 1. Effectiveness Condition 25 2. Other 26 H. Readiness for Implementation 26 1. Compliance with Bank Policies 26 Annexes Annex 1: Project Design Summary 27 Annex 2: Detailed Project Description 32 Annex 3: Estimated Project Costs 36 Annex 4: Incremental Costs and Global Enviromnental Benefits 37 Annex 5: STAP Review and Responses 46 Annex 6: Procurenient and Disbursement Arrangements 50 Annex 7: Project Processing Schedule 61 Annex 8: Documents in the Project File 62 Armex 9: Statement of Loans and Credits 63 Annex 10: Country at a Glance 65 MAP(S) IBRD 31718 GUINEA Decentralized Rural Llectrification Project Project Appraisal Document Afiica Regional Office AFTEG Date: January 30, 2002 Team Leader: Noureddine Bouzaher Country Manager/Director: Mamadou Dia Sector Manager/Director: M. Ananda Covindassamy Project ID: P074288 Sector(s): PP - Electric Power & Other Energy Adjustment Lending lnstrument: Learning and Innovation Loan (LIL) Theme(s): Rural Development Poverty Targeted Intervention: N Global Supplemental ID: P042055 Team Leader: Noureddine Bouzaher Focal Area: G Sector Manager/Director: Supplement Fully Blended? TBD Sector(s): PP - Electric Power & Other Einerg Adjustrnent Project Financing Data I3 Loan [Xt Credit [X] Grant [ ] Guarantee (X] Other: This is a Leaming and Innovation Loan (LIL) For Loans/Credits/Others: Amount (US$m): US$5.Om IDA loan US$2.Om GEF grant Proposed Terms (IDA): Standard Credit Grace period (years): 10 Years to maturity: 40 Commitment fee: 0% Service charge: 0.75% Financing Plan (US$m): Source Local Forelgn Total BORROWER/RECIPIENT 0.15 0.95 1.10 IDA 5.00 0.00 5.00 GLOBAL ENVIRONMENT FACILITY 0.00 2.00 2.00 LOCAL SOURCES OF BORROWING COUNTRY 0.00 8.90 8.90 Total: 5.15 11.85 17.00 Borrower/Recipient: REPUBLIC OF GUINEA Responsible agency: BUREAU D'ELECTRIFTCATION RURALE DtCENTRALIS1'E (BERD) Address: Rue RO 189, Comnmune de Ratoma, BP 701, Conakry Contact Person: Nava Toure, Directeur of BERD Tel: (224) 11 25 29 85 Fax: Email: nava®sotelgui.netpgn Other Agency(ies): Ministere de lHydraulique et de l'Energie Address: BP 1217, Conakiy Contact Person: M. Abou Kawass Camara, Directeur National de l'Energie Tel: (224)11 21 08 95 Fax: (224) 11 45 25 59 Email: NA P074288 Estimated Disbursements ( Bank FYIUS$m): FY 2002 2003 2004 2005 2006 Annual 0.50 1.00 2.00 1.00 0.50 Cumulative 0.50 1.50 3.50 . 4.50 5.00 P042055 (GEF) Estimated Disbursements ( Bank FYIUS$m): ....._ _ _ _ _ _ 2 0 0 2 0 0 2 Z3 . .. . . . . . . . . . . 2 2 . : _ _ _ _ _ _ _ _ _ :::._ _ _ _ _ _ _ ..:: .. :.-: .... 2.. .. 2 ...... .,3.- ... Annual 0.00 0.60 0.80 0.40 0.20 Cumulative 0.00 0.60 1.40 1.80 2.00 Project Implementation period: 4 years Expected effectiveness date: 08/31/2002 Expected dosing date: 06/30/2006 oc PM fo R. vw -2- A. Project Development Objective 1. Project development objective: (see Armex 1) The project will test institutional, financial and delivery mechanisms to;promote better access to electricity in rural and peri-urban areas. In support of that objective, the Project seeks to: (a) Test institutions, regulations and delivery mechanisms to develop, decentralized and affordable village electrification schemes; and (b) Test financial mechanisms to deliver increased access to electricity and mobilize private sector financing for energy projects in rural communities. 2. Global objective: (see Annex I) The Project's global environmnental objectives are to: (a) Remove barriers to the adoption of Renewable Energy Technologies (RETs); and (b) Reduce greenhouse gas (GHG) emissions through the substitution of RETs (or other modem electricity supply) for candles, kerosene, and other fossil fuels in rural energy applications. 3. Key perfornance indicators: (see Annex 1) The key performance indicators for monitoring the achievement of the project objectives are that, by the end of the project: (a) whether the institutions and regulations put in place have worked reasonably well and contributed to the achievement of project objectives; (b) individual loan collection rates, as a measure of the extent to which the project has been successful in establishing a sustainable delivery mechanism, do not fall below 75 % at the end of the project; (c) the decentralized electrification financing mechanism (Fonds pour l'Electrification Rurale Dicentralisee, FERD) is operational and has a sustainable source of govemment financing and financial support from donors; (d) the necessary private sector financing has been mobilized to provide electricity to some 20,000 households by the end of the project; and (e) whether it has been possible to reduce C02 emissions by about 30,000 tons by the end of the project, as a result of photovoltaic, and micro-hydro electricity use. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex I) Document number: 17183 Date of latest CAS discussion: 10/27/97 The key objectives of the CAS are to: (i) alleviate poverty, (ii) create an environment attractive to private sector investment; and (iii) employmnent generation. The project supports the main goal of improving the quality of life of low income population by -3- designing and testing sustainable mechanisms to increase low income household access to affordable electricity services. If successfully implemented, the mechanisms would provide educational benefits through better lighting and economnic benefits through household income being supplemented by energy based productive activities day or night. There are also health benefits through the electrification of clinics and better infomiation through the use of telephones and other modem communication equipmnent. The CAS progress report (report number 2245 1) which was discussed on 07/24/01 also emphasized the need for rural energy as part of the Government's strategy to fight poverty. The report specifically says that: " The Bank will support rural electrification needs through the Rural Energy LIL". I a. Global Operational strategy/Program objective addressed by the project: The proposed project is fully consistent with GEF Operational Program Number 6 (OP 6); Climate Change: Promoting the Adoption of Renewable Energy by Removing Barriers and Reducing Implementation Costs. Removal of barriers will make it attractive for the private sector to start investing in decentralized rural electrification schemes, and operate these on a fully commercial basis. Specifically, the Project would (i) initially buy down the relatively high investment costs of RETs; (ii) raise public awareness of the advantages of using RETs, and (iii) reduce initial high transaction costs that result from lack of market knowledge, small market size, and dispersed consumer base. It is expected that by completion, the Project would have demonstrated RETs to be viable business opportunity in Guinea. 2. Main sector issues and Government strategy: Some 70 percent of Guinea's 6.8 million population live in rural areas. Overall, less than 5% of the population has access to electricity: about 35% of urban households (the capital and large prefectures) and less than 1% of rural households (district or " sous-prefectures" level localities). Rural households have no prospects of receiving electricity services based on conventional solutions in the foreseeable future. In peri-urban areas, there are still thousands of potential consumers who are not connected to the grid for technical and/or financial reasons, who use batteries to run their TVs and lights. Private pico generators are being used by few wealthy and small businesses. At least 10 different types of generators below 5 kVA can be found in Conakry's hardware stores. Small distribution systems at the sous-prefecture level have been observed: entrepreneurs were able to arrange financing mostly for second hand diesel generators and. low-cost distribution networks. Consumers are mainly boutiques and small businesses. These operators generally do not provide electricity to households. The power company, EDG, supplies electricity to the capital, Conakry, and a number of smaller towns. Mining companies and some other large consumers generate electricity for their own use. In addition, there are 24 small diesel and run-of-the-river hydro stations in several towns whose operation is sporadic, inefficient and unreliable. In most rural areas, however, there is no electricity. System operations had been contracted out for 10 years to a foreign private -4 - operator, SOGEL, under an "Af ermage" contract. SOGEL's mandate is to operate in urban areas, leaving rural and peri-urban areas essentially without service. in 2001, the affermage (or lease) agreement has fallen through due to disagreements between SOGEL and the Government over tariff adjustments and other cost recovery measures that could not be resolved to the satisfaction of both parties. The government has reiterated its commitment to reform and to launch a new reform process in the power sector. The quality of urban electricity service has improved significantly and consumption increased substantially although largely through urban illegal connections. The proposed LIL that focus essentially on the rural areas, is not affected by the problems affecting the formal sector. Government Strategy The CGovernment's strategy for the power sector that was endorsed by the Bank, is aimed at: (a) Ensuring a reliable electricity supply to support economic activities; (b) Adopting and enforcing effective economic tariff policies; (c) Mobilizing private sector financing for the production, transnmssion, and distribution of electricity; (d) Promoting decentralized electricity supply; and (e) Limiting the Government's activities to policy malkng and regulation ot the energy sector. In June 1998, the Government promulgated Law 97/012/AN, which allows the financing, construction, management, and operation of infrastructure assets by the private sector. With the assistance of the Energy Sector Management Assistance Program (ESMAP), the GoG has also conducted several surveys to develop a framnework for a decentralized electrification program. The results of these surveys are similar to what was found in other West African countries: (a) Rural consumers and institutions only use small quantities of electricity for lighting, conimunication, water pumping, and refrigeration. Typically, a rural family uses the equivalent of 20 kWh/month, a load that is too small to justify grid extension over a long distance. Currently, households not connected to the national grid, use kerosene lamps and dry cell batteries for radios, flash lights, etc., and pay a fairly significant amount for this use ($5-8 per month). If one considers Guinea 1998 GNP per capita of US$540, this expenditure on fuels represents between II and 17% of households' average annual income; and -5- (b) Individual systems (SHS and solar lanterns) or collective systems (pico-hydro - systems with a capacity not exceeding 100 kW, and hybrid diesel-generator sets) could provide an intermediate solution that would be affordable for large parts of the peri-urban and rural households. Taking into account the findings of the surveys, the Government has adopted a new strategy for the Decentralized Rural Electrification (DRE). This was reflected in a sector policy letter of February 1998 that calls for: (a) Establishing a regulatory framework for the DRE (applying to power plants with up to 250 kW of installed capacity), including the liberalization of tariffs on DRE delivery and services, and the elimination of import taxes and VAT on specific DRE equipment; (b) Creating a small rural electrification office Bureatu d 'Electrification Rurale De centralisee (BERD) for DRE planning; and (c) Creating a financing mechanism (Fonds d'Electrification Rurale Dicentralise), to be managed by a local financial institution. 3. Learning and Development issues to be addressed by the project: A Learning and Innovation Loan will allow time to design and test sector institutions and to gain more experience for the development of sustainable mechanisms. Scaling up rural electrification services to the national level would therefore be addressed in a follow-up operation. This LIL concerns itself with three main barriers: (1) lack of technical capacity to develop and implement decentralized electrification activities; (2) lack of capacity to finance such activities; and (3) the high up-front cost of rural electrification equipment, and particularly of renewable energy technologies (RETs). The LIL will address the first issue by providing technical assistance for rural electrification planning and formal and on-the-job training to local operators and experts. The LIL will address the second issue by developing with a local commercial bank financial arrangements that will demonstrate to the local financial sector that it is financially rewarding to co-finance such schemes. The LIL will address the third issue by developing a package of subsidies and loans (level, modalities) that will incite private financiers and companies to invest in rural electrification schemes and provide a solid basis for further development of DRE in Guinea. Lessons to be learned include: (i) how to create as quickly as possible sufficient technical capacity to develop and implement rural electrification projects, and how to make this a sustainable process; (ii) how to increase the participation of local commercial banks in the financing of private rural electrification projects, what levels of subsidy to apply over time, and how to make this a sustainable process; (iii) how to best infonn the rural population of the opportunities created to develop rural electrification projects, and how to - 6 - best channel any demand through potential providers; and (iv) appropriate regulation/rules for decentralized supplies; tenns and condition of licenses (including 'nonexclusive' licenses) and how these could be issued/administered. The need to develop capacity to design and manage institutions for decentralized rural electrification as well as a need to create a rminimum level of technical and financial capacity before launching a wider effort, provide a justification for a LIL. 4. Learning and innovation expectations: GL Economic 1 Technical OI Social 1 Participation 1 Financial I lnstitutional OL Environmental L Other It is expected that this LIL will develop institutions allowing for scaling-up rural access to electricity in Guinea. To this effect, it will put in place mechanisms that, by the end of the project, will have demonstrated their effectiveness in providing rural and decentralized electrification services. This should provide sufficient information and experience to launch a larger program. The project will establish and test how best to use private participation in decentralized rural electrification (DRE), develop financing mechanisms, raise awareness, and reduce the up-front cost of DRE equipment. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The three (3) components of the decentralized rural electrification LIL to overcome the barriers to more widespread use of DRE activities, are: Project component 1: Capacity Building Technical assistance will be provided to the "Bureau d'Electrification Rurale D¢ralisee" (BERD) in the monitoring, evaluation and dissemination and replication of activities. Private providers will be assisted in the identification and setting up of electricity service delivery in rural areas under concession arrangements and trained in installation and maintenance of equipment. Village associations will be encouraged to organize service delivery through an operator. Over the duration of the project, the technical assistance will help BERD define priority areas, evaluate DRE proposals, coordinate, supervise and monitor the execution of the various DRE projects. The aim of the DRE program is to supply electricity services to some 20,000 households in more than 75 villages through photovoltaic, pico-hydro, and diesel (or hybrid) systems. These systems will be paid for by the beneficiaries through a financing mechanism that will managed by a local commercial bank (Bl3IGUT). Environmental benefits will result from the use of renewable energy technologies. -7- Project component 2: Financing Mechanism and Implementation of the DRE Program A "Fonds d'Elechfication Rurale Dhcentralisee" (FERD) will be created to respond to the lack of long-tenn credit and the high up-front cost of rural electrification systems (e.g. renewable energy systems). The Fund resources would come from the general budget, bilateral/multilateral donors, and at a later date, with improvements and the privatization of the power sector, from a kWh levy. The funds of FERD will be used for three general purposes: (a) to cover the operational cost of managing BERD, which is composed of two items (i) the annual operating cost of BERD; and (ii) the annual cost of the contract with the auditors; (b) to provide loans to promoters of RE projects approved by the Steering Committee; and (c) to provide grants to promoters of RE projects approved by the Steering Committee. The financing plan of an approved project would be constituted, on average, by 50% grant, 25% loan and 25% equity. The grant element will depend on the technology, power and services delivered, geographical setting, the quality of the borrower, etc. As part of its operations. BERD will help fund the feasibility study of PDESs projects. To show its commitment, the PDES will pay a retainer in a bank account at BICIGUI that will go toward its contribution to the project, if the project is accepted. If the project is rejected, the full amount deposited is reimbursed. The eligibility criteria will be the financial, technical, and managerial feasibility of the proposed PDES project. Project component 3: Project Coordination and Management The project will support and strengthen the operation and the capacity of BERD, to coordinate, supervise and monitor the execution of the project through the provision of qualified staff, personnel training, and the acquisition of vehicles and equipment. - 8 - Private local investors and beneficiaries are expected to contribute an amount of about US$8.9 million. IndicaUve Bank GEF % Component Sector Cosls % of financing % of financing GEF _US$?AJ Total lilSSML Total (US$M) financing 1. Capacity building; tecluiical Other Power & 2.50 14.7 1.00 20.0 0.50 25.0 assistance to create and support Energy Conversion evalwate DRE proposals, monitoring and evaluaton of the activities. Assistance to BERD for dissemination/replication, and staff training. Training of PDES staff. Design of simple enivironineJntal guidelines for safe handling and disposal of waste (engine oil, batteries, etc.) 2. Financing mechanism and 12.50 73.5 2.50 50.0 1.50 75.0 technical and financial assistance to implement the five- year DRE program. 3. Project coordination and 2.00 11.8 1.50 30.0 0.00 0.0 tnanagement. I Global Components 0.00 0.0 0.0 0.0 0.00 Total Project Costs 17.00 100.0 5.00 100.0 2.00 100.0 Total Financing Required 17.00 100.0 5.00 100.0 2.00 100.0 2. Institutional and implementation arrangements: A summary of the implementation arrangement is presented below: Implementation period: 4 years: 2002-2006 Executing agencies: Ministry of Energy, BERD and BICIGUI Project Management: The proposed institutional arrangements rely on: (i) the "Bureau d'Electrification Rurale Decentralisee" (BERD); (ii) the financing mechanism (FERD) managed by a private commercial bank; and (iii) a micro finance institution that may assist villages and providers in opening accounts to manage their rural electrification transactions. Other important players are MHE and the private sector. Since this is a Learning and Innovation Loan operation, it is expected that a follow-up operation will be developed to expand rural electrification services on a wider scale. The following diagram illustrates the relationships of the various DRE actors. The institutional responsibilities are detailed in Annex 2. -9- Ministry of Energy Direcrion Nafio.afl of Er:efgy (DNE) Steering Committee (policy and approval of BERD budget and work program), Approved PDES projects BERD' FEIRD 3 main roles: (i) to identify, catalyze, and Managed by supervise developmont of the first DRE BiCiGui (a local activities; (ii) train stakeholders.(potential cmercial Bank) PDBS) in the development of business plans and the actual development of projects: and o (iii) launch an awareness and information campaign to inform potential beneficiaries. roviders of Decentralized__ Electricity Services I F (PDES) Micro finance Institution (Credit Rural de Cua. e Caa assist villages and providers in opening accounts t . . ~~~~manage their rural electrification transactions. A part o consumers payments may be set aside to repay FERD 5 ~~~~~loan(s) to the PDES The regulatory rules and procedures for rural electrification have not yet been tested, and their feasibility will need to be verified. In general, most regulations only apply to the urban electricity supply, simnply because there is no significant rural supply. The Direction Nationale de l'Energie agrees that: (a) Priorities of rural electrification: specific projects will be developed on a commercial basis, according to business opportunities as seen by the PDES. DNE or any other government agency will not be involved in establishing priorities; (b) Sound electricity tariffs: to be set by the PDES, reflecting economic costs. Initially, however, the tariff proposal will have to be accepted by BERD, at the time of the business plan analysis, in order for the PDES to benefit from the financing mechanism advantages. Over time, tariff regulation will be done by a regulatory agency; (c) No State intervention on PDES selection: this will be left to the appreciation of BERD and the commercial banks financing the PDES's projects; and (d) The responsibilities of the Government are to: (a) define the area where DRE concessions can be promoted (urban/peri-urban, geographical, level of installed power), (b) define the rules applicable to the PDES, in terms of regulations and contracting; (c) develop fiscal incentives and provide technical and financial support, and (d) once BERD approves a financial contribution to the closure of a particular subproject, MHE will - 10- automatically award the concession. To obtain a financial contribution under the FERD, PDESs must submit business proposals to BERD in two phases: (a) First, the PDES will submit project ideas accompanied by a draft business plan. BERD will pre-assess the feasibility of the proposal and indicate the possible level of financial contribution (medium-term loan plus a grant if applicable). If the stakebolders agree to continue with the project, they have to prepare a final business proposal. BERD may assist in this preparation with the financing of studies. (b) Second, once BERD has reviewed the final business proposal with regards to its financial, technical, and managerial feasibility, BICIGUI will evaluate the credit worthiness of the candidate. Before the project can become active, the PDES will need to obtain financial closure with the bank of his choice and/or finance his share of the investment with his own money. Once financial closure is obtained, BERD will ask DNE to sign the concession contract covering the project. A. Ministere de l'Hydraulique et de l'Energie (MHE) MiHE's main role, through its Direction Nationale de l'Energie (DNE) is to ensure that a proper regulatory framework and sector policies exist, to evaluate their impact and, as necessary, fine-tune these. MHE will award DRE concessions for each project on a no-objection basis, on BERD's recommendation. Finally, it should assist in developing mechanisms that will make decentralized rural electrification a sustainable activity, including a search for funds from donors and a surcharge on electricity tariffs. DRE and Conventional Electrification: the geographical frontier between the program of decentralized rural electrification (PDRE) and conventional electrification has been defined by DNE as follows: (a) conventional electrification through extension of existing grids (globally Conakry-Kindia, Kinkon and Tinkisso grids), as well as all prefecture capitals; electrification in these zones is delegated to EDG (or its successor); (b) the DRE program concems Sous-Prefectures and other similarly-sized localities without perspective of being electrified by grid extension within 10-15 years; (c) those places where DRE appears to be easiest and more profitable, essentially in terms of customers willingness to pay, number of potential customers, level of income, and potential use of electricity for productive purposes. B. Steering Committee A Steering Committee will oversee BERD's functioning and will act as its Board. - 1 1 - The Steering Committee (Comite de Pilotage, CP) will comprise at least six representatives: the National Director of Energy (Chairrnan), EDG (or its successor), the commercial bank in charge of the FERD (BICIGUI), the manager of BERD, and representatives of private firms (preferably a representative of an association of firms such as solar importers, PDES, etc). The CP will approve BERD's annual work program and budget. The CP approves the PDES projects submitted by BERD and decides on the grant to be awarded. Day to day operations are the responsibility of BERD. C. The "Bureau d'Electrification Rurale Decentraliske" (BERD) In addition of its competences, the role of BERD will be four-fold: (i) manage the part of the project and identify, catalyze, and supervise development of the first DRE activities; (ii) train stakeholders (potential PDES) in the development of business plans and the actual development of projects; (iii) analyze and evaluate Business Plans presented by PDESs; and (iv) launch an awareness and information campaign to inform potential beneficiaries. It is expected that BERD will ultimately be replaced by a permanent institution to be called Agence Guineenne d'Electrification Rurale (AGER) to be created in the future. Support to PDESs: BERD would, either directly or through a contract with specialized organizations, provide assistance to PDESs in preparing project and grant applications. BERD would be responsible for assuring that the specialized organizations that are hired, are qualified, verifying that their work program is consistent with the project output, monitoring the interventions and evaluating their effectiveness. D. The "Fonds d'Electrification Rurale Decentralisee" (FERD) In order to mobilize private investment for decentralized rural electrification there is a need to establish an attractive investment environment. A concession is a time bound arrangement whereby, a PDES commits to provide certain services in a certain geographical area (for example, I - 20 villages). Concessions of 1 0 years appear a lower limit, for three reasons: (a) The stakeholder needs a prospect of a sufficient return on investment, and this requires a long enough period; (b) 10 years provide a reasonable goal to have a PDES reinvest in the project area; he/she needs to have -some secure footing in his/her business before he/she starts to expand; and (c) 10-15 years duration is also the average lifetime of DRE equipment. Each project will give rise to a concession to serve a given area. The concession is a contract between MHE and the provider and transfers the rights for providing electricity services in the project area to the PDES. This is done to give a sense of certainty to the providers, who otherwise may not be interested in investing in a particular area. Given the focus of the project, priority would initially accorded to concessions in the rural areas. - 12 - A decentralized rural electrification financing mechanism (FERD) will be managed by a commercial bank with funds that would come from the general budget, bilateral/multilateral donors, and at a later date, from a kWh levy, - to provide loans and grants. This ensures the long term sustainability of the financing mechanism which will be the key instrument for achieving an equitable access to electricity. The commercial financial sector would normally be expected to provide debt financing on commercial terns for RE investments. However, given the current status of Guinea's financial sector, PDESs would be required to contribute significantly to the financing of their project out of their own funds. The project funds would therefore not supplant the financial sector in providing financing for RE activities. Only one commercial bank has expressed an interest (BICIGUI, Banque Internationale pour le Commerce et lI'ndustrie de Guinee) in managing DRE activities. It should be noted that other commercial banks in Guinea have not shown an interest in becoming involved at this time. Existing experience with rural credit will be used as much as possible, in particular that of the CRG (Credit Rural de Guinee) and the Bank's water project (PACV, Projet d'Appui ata Communautes Villageoises). The cost of the Trust Agent (BICIGUI), who administers the payments to projects approved by the Steering Committee will be agreed in the Subsidiary Agreement to be signed between GoG and BIBICGrUl. FERD would provide: (a) Loans tied to DRE activities to be made available to eligible PDESs through BICIGUI. The participating PDESs would apply for the loans through the usual procedures of BICIGUI, which would review these applications using prevailing standard policies and procedures. The signing of a subsidiary loan agreement between BICIGUI and the govemment defining the functions and responsibilities of BICIGUI, under terms and conditions satisfaictory to IDA, would be a condition of effectiveness of the credit. IDA and BICIGUI would also enter into a project agreement to define their relationship. BICIGUI would maintain a lending policy, i.e. prudential and solvency, norms, quality of loan analysis, and distribution of risks, acceptable to the Association and BERD, and suitable procedures, as well as an adequate number of suitably qualified staff to enable it to effectively appraise the financial feasibility of DRE activities for which PDESs would be applying for loans. (b) Grants: in order to buy down the high cost of renewable technologies, grants would be provided to PDESs to encourage their use and dissemination. The adoption by BERD of a manual of procedures detailing the criteria, procedures and guidelines applicable to the provision of such grants is a condition of effectiveness. The main principles underlying the calculation and payment of grants will be: * Grants should be well-targeted for the intended beneficiaries. The overall objective of a grant support is to assist rural transfonnation, and the specific objectives, in order of importance, are: - Satisfy the need for household lighting and other essential uses (household welfare); - 13 - - Satisfy the productive demand for energy (economic development objective to reduce income poverty); and - Satisfy the public demand for electrification (social development impact of poverty reduction) Further, for purposes of geographic targeting, the non-electrified areas will be divided into: - peri-urban, where the needs for grants is relatively low; - rural, where the need for grants is higher, and these higher grant rates signal the Gov'ernment's commitment to regional equity. * The grant system should include a built-in mechanism for an efficient supply response. A well-established system for reducing the need for grants is a process of "bidding for minimum grants, given fixed tariff levels". Under this systern, the tariffs to be paid by consumers are predetermined, and potential project developers are required to specify the level of grants they would need to undertake the project, with the lowest qualified bidder being the winner. A variant of this system - "bidding minimum tariff, given fixed grant levels" - is more appropriate for Guinea. In this variant, the level of grants is predetermined, and potential project developers are required to specify the level of average tariff they would charge, with the lowest qualified being the winner. The bidding process will be organized by BERD. This system makes it easier to determine the overall grant budget required in a particular year or longer. In the initial stages of the project where the objective is to demonstrate that decentralized rural electrification is a viable activity and to test various institutional and financial arrangements, the level of the grant would be deternined on a case-by-case basis. * The procedure for calculating grants payable for particular projects should be objective and transparent The calculation of grants payable for particular projects will be based on an assessment of the capital costs of the project, with alternative mechanism - principally the average cost per connection - to provide a check on the level of grants payable. * The manner of payment of grants should promote performance/output, instead of being linked to inputs. This type of linkage of payments directly supports the overall goal of the RE program, i.e., the number of users connected, and private equity financing. It also avoids the problem that when grants are linked to inputs, this often sends wrongs signals to developers about the relative prices of various inputs. For example, "soft" interest loans linked to input purchases tend to encourage a capital-intensive approach, such as maintaining higher levels of inventories. * Grants should facilitate financing of RE projects. Grants will be paid at project initiation or during project construction function as equity, in the sense that they reduce the need for the developer's own equity and/or debt finance from commercial lenders. 70% will be paid by the time of project commissioning, while the remaining 30% will be paid over the first three years, provided that the project connection targets meets agreed output - 14 - criteria. E. Micro rmance Institutions Micro finance institutions could assist PDES and-villages in establishing appropriate payment procedures, if they wish to. Initially, BERD will work only with Credit Rural de Guin6e (CRG) although over time, other MFIs may be associated. CRG assisted in the preparation of the project, and was the only MFI that has, from the start, shown a keen interest in rural electrification. CRG will not provide funds, but it will manage different accounts that are opened at its local branches by villages with a DRE activity - if desired by the PDES. Villages, if they wish to, can organize themselves in many ways. They may, for example, forn an new association or use an existing one, such as a water committee, to open an "electricity account" at CRG. Once electricity service starts, part of consumers payments may serve to reimburse the loan(s) FERD has made to the PDES. Thus, the MFI only serves as a channel for the payments from the end-user to the PDES and FERD. F. Private enterprises, NGO's, and local community organizations There are several possible ways for the private sector, NGOs and local community organizations to get involved: (i) PDESs; (ii) investors who contract service delivery out to a technical operator; (iii) viUages that enter directly into a contract with a technical operator on their behalf; (iv) an NC7O that takes the initiative to arrange for service delivery. For example, the French Volunteers for Progress (AFVP) have expressed an interest in submitting projects, other NGOs may be interested as well. G. Private Management The development and operation of the DRE schemes are entirely left to the private sector, in terms of ownership and management. This is an important political option of the Govemment included in the "Lettre de Politiqte Sectorielle de l'Electrification Decentralisee" (February 1998) and confirmed by Law 97/012/AN "autorisant le Financement, la Construction, I 'Exploitation, I 'Entretien et le Transfert d 'Infrastructures de Developpement par le Secteur Prive" (June 1. 1998). The chosen formula for private participation is the Build, Own and Operate (BOO), which is regulated by the 1998 BOT (Build, Own and Transfer) Law. This includes the creation of small private utilities in peri-urban and rural areas. This approach allows the possibility for a local association to take over the operation after installation, or even developing the whole activity itself, as long as it abides by the rules. H. Tariffs Tariffs evidently are crucial for the efficient development of DRE on a commercial basis. GoG has decided not to interfere in tariff setting, and this is an important starting point. Tariffs will be based on the business plans submitted by the PDES. BERD will verify that these tariffs are appropriate in terms of economic and financial criteria and such as to provide a reasonable return to the investor. As a proof of its commitrnent to the objectives of the project, the GoG has - 15 - decided to promote DRE by exempting DRE services and equipment from VAT and/or import taxes. I. Choice of solution at the village level The PDESs will provide energy services and households will pay a fixed monthly fee that is negotiated up-front. The choice of technology is at the discretion of the PDESs. There are two solutions actively promoted under the project: (i) solar home systems (photovoltaic electricity) in case of low-density areas, where it is not economic to develop a small distribution network; and (ii) community based generation with small distribution networks, mainly pico-hydro. Under ESMAP studies, six pilot projects were identified. Ensuing discussions with villagers showed the feasibility of the suggested approach as well as the explicitly expressed willingness to participate in the realization of such projects. Accounting. financial reporting.. and auditing arrangements: BERD will be responsible for project financial management including the preparation and production of annual financial statements, in accordance with internationally accepted accounting principles, as well as making arrangements for their certification by a competent and experienced audit firm under terms and conditions acceptable to IDA. BERD will also monitor all disbursements under the sub-projects and ensure that they are made in conformity with IDA requirements. BICIGUl will submit to IDA, through BERD, annual and quarterly reports on the progress of implementation of DRE loans. A computerized financial management information system, including the manual of procedures, the accounting, budgetary, financial, and internal control systems, will be established within BERD by a reputable consultant and it would be operational at the outset of project implementation. The design of the financial management system will be based on IDA reporting requirements. BERD will be adequately staffed by competent and experienced professionals, including an administrative and financial specialist. The financial management system will allow for the proper recording of all project-related transactions as well as timely monitoring of expenditures by category and by components. The records and accounts of all the components of the project would be audited annually by an independent auditor. Regarding loans, the audit firm will review the performance of BICIGUI as well as of the PDESs, and provide specific opinion on the effectiveness and efficiency of the lending procedures. In addition to the audit opinion on the financial statements, the auditor will be required to express separate opinions on the SOEs and the management and utilization of the special account. Finally, the auditor will issue a management report with practical recommendations for improving the project intemal control system. The establishment within BERD of a sound financial management system acceptable to IDA and the recruitment of the project auditors would be conditions for effectiveness. -16 - 3. Monitoring and evaluation arrangements: Monitoring, evaluating and permanent learning would be an important dimension of the project as RE delivery mechanisms need to be field tested to make sure that these can be applied on a sustainable basis and on a large scale. Lessons learned during this process would be immediately applied. Two perfornance reviews would be undertaken by independent consultants to enable the Borrower and IDA to evaluate the implementation experience. BERD is responsible for all RE monitoring and evaluation and will put in place a mechanism for monitoring. BERD will mainly rely on local consultants and partly on its ow.n staff to undertake the dissemination and the monitoring and evaluation tasks. There are three beneficiary groups: (i) rural households and businesses; (ii) providers and suppliers of equipment and/or investors; and (iii) the banking sector. The monitoring of project performance includes measuring economic, financial, technical, social, and environmental changes on each of these groups as applicable. The following table summarizes the monitoring topics: Beneficiary economic financial technical social environmental Rural household x x x Rural firm (business x x x generated because of electricity availability) MFl x Provider x x Investor x Commercial bank x Village x x x Guinea x x x The main dissemination channels are: (a) public availability of information from monitoring and evaluation activities; (b) special initiatives to engage policy and operation decision makers and program stakeholders in internalizing the lessons from experience and best practices; (c) use of lessons and best practices in the development of new policies and projects; (d) systematic action on the findings and recommendations that flow from the monitoring and evaluation program; and (e) specific dissemination programs for each - 17 - implementing agency and the country focal point, including exchange of good practice with other countries. D. Project Rationale 1. Project alternatives considered and reasons for rejection: The proposed project tests the adequacy of incentives to elicit a supply response, the financing mechanism, the appropriate institutional framework, the capacity and the readiness of the private sector to undertake infrastructure projects in rural areas. Little experience on financing infrastructure projects in rural areas exists in Guinea. Introducing untested institutional and financing mechanisms in this environment on a large scale would be extremely risky and could lead to a costly failure. A phased or gradual approach is therefore justified. The provision of subsidies to buy down the high up-front cost of renewable energy technologies is necessary for private sector involvement in the spreading and use of these technologies. The provision of subsidies also acknowledges the fact that part of the benefits (e.g. reduction of C02 emissions) are global benefits and therefore not captured by individuals who would therefore be unwilling to pay the extra cost of these technologies. The altemative of providing short tenn versus long term loans was rejected because the failure of infrastructure development in rural areas can be precisely traced to the lack of availability of long term financing. Understandably, risk taking by the banking sector in the rural areas, is currently absent and has be built and nurtured. To ensure sustainability, an effort was made under the project to associate the conmnercial banking sector in Guinea to the provision of loans but realistically this might take some time. The project will try to demonstrate, taking into account the risks involved, that it is rewarding to finance infrastructure in the rural areas in Guinea. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). . : .. : S~~~~~rQect ors (.... :.Pwe SR) Ratinga .. ... .: tt Prvis ont5U Implementation Development Bank-financed Progress (IP) Objective (00) Increase private participation in power Guinea Power Tl Project U U sector (POO1043) Independent mini-grids Sri Lanka Energy Service S S Delivery (P010498) Solar PV Indonesia Solar Home Systems S S (P035544) Sri Lanka Energy Service S S Delivery (P010498) China Renewable Energy S S (P046829) Other development agencies IPIDO Ratinrgs: HS {HiHghly Satsfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected In the project design: Key lessons leamed from power projects in Guinea, as well as from rural electrification worldwide include: * The need for long term financing to enhance the ability of the private sector to undertake rural infrastructure schemes, including rural electrification; * The association and involvement of the local banking sector are important to ensure sustainiability;, * The development of consumer credit is necessary to expanding the market beyond cash sales; * Decentralization of decision making, with demand-driven selection criteria for service expansion; * Rural electrification should be set up on a commercial basis, with some subsidies generally required, but recurrent cost subsidies undermine sustainability; * The development impact can be increased bysubsidizing access, (i.e. low connection charges instead of consumption) and cost-recovery based tariffs; * Reduce costs by promoting low-cost equipment and technical specifications; and * The importance of establishing a framework for project management that can be updated based on implementation experience. 4. Indications of borrower and recipient commitment and ownership: Indications of the borrower and recipient commitment and ownership are the following: (a) the Government has organized a participatory workshop in October 1997 to discuss issues and options in decentralized electrification (DE), and to listen to stakeholders' concerns and expectations; (b) a letter of sector policy on decentralized rural electrification of February 1998 formalized the Government's commitmnent for promoting private sector in the DE program; (c) a law promulgated in June 1998 laid down the legal and regulatory framework for private participation in decentralized electrification; (d) the Govemment has requested and obtained a Project Preparation Facility (PPF) to help prepare the project; and (e) the Govermnent has exempted renewable energy technologies (RETs), from taxes and duties to make them more affordable and help in their dissemination. 5. Value added of Bank and Global support In this project: The Government of Guinea looks mainly at the Bank for advice in matters relating to its power sector. Through sector dialogue, the Bank is supporting power sector reforms. This, however, will mainly benefit the urban areas; it is important that the Bank also support rural electrification and renewable energy development, so that those who cannot be reached by the electricity grid in the foreseeable future, especially in the rural areas, are not neglected. Furthermore, bilateral and multilateral donors work closely with the Bank and follow its lead in relation to expanding access to electricity in urban as well as urban areas, IDA and GEF financing are key in bringing down the cost of renewable energy technologies (RETs) and facilitating their adoption in the rural areas. The Government is also -19- doing its part by exempting RETs from taxes and duties. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): (For LIL, to the extent applicable] O Cost benefit NPV=US$ million; ERR = 7.75 % (see Armex 4) O Cost effectiveness * Incremental Cost O Odher (specify) (a) Tariff setting for DRE services and the proposed financing mechanism are flexible' enough to test for the optimal way to provide financing to local providers (an objective'of the LIL). (b) Non quantifiable economic benefits include health improvements, better educaL.v., income generation, and better information. The ERR for the project, excluding these benefits, was estimated at about 7.75%. 2. Financial (see Annex 4 anid Annex 5): NPV=US$ million; FRR = % (see Annex 4) [For LIL, to the extent applicable] The financial analysis shows that without the project, the IRR for a PDES to invest in village electrification ranges from 2% (hydro) to about 5% (diesel); and is negative for solar. With the project, the rate of return to PDES is increased to at least 18%. This provides an attractive incentive for dissemination of decentralized rural electrification. To facilitate this process, the financing mechanism will provide a blend of long-terrn concessional loans and subsidies, depending on the type of technology to be deployed. The added attraction is the security of tenure whereby a PDES obtains a long-term service "concession" in a particular area. Cost recovery is the responsibility of the PDES. An MFI has accepted to set up project accounts for villages where the PDES is active to facilitate payments. 3. Technical: [For LIL, enter data if applicable or 'Not Applicable] (a) A limited set of technologies will be eligible for financing as the main issue is sustainable delivery of DRE: solar home PV systems; pico-hydro, small diesel generators or hybrids. Only renewable energy equipment will be eligible for direct subsidies from the GEF grant. (b) Long term sustainability of DRE systems will depend on quality of the individual components.as well as on the system design (including proper assembly and installation procedures) and good management of the facilities, meeting consumer's expectations and capacity to pay. These considerations led to consider the 15 and 50 Wp PV systems, up to - 20 - 100 kW of pico-hydro systems and up to 250 kW of thermal plants for broad dissemination. 4. Institutional: 4.1 Executing agencies: The LIL will build a permanent national mechanism for RE. BERD will be in charge of the day-to-day management of the project. Key areas of the project financial management have been assessed to ensure agreement with Bank procedures. BERD staffing would be adequate and would include the Director of BERD, an accountant, two technical specialists, a procurement specialist and a financial analyst. BERD would: (a) coordinate individual project activities; (b) supervise the execution of RE projects; and (c) prepare the annual work program, annual budget, accounts and financial statements, progress reports, disbursements applications, and procurement plans. 4.2 Project management: (a) A major objective of this project is to develop sound institutional arrangements, particularly at the community level. A limited set of institutional arrangements will be tested; (b) The manual of procedures details the functions and modus operandi of the BERD's Steering Committee (the "Comite de Pilotage"); (c) MHE will address the regulatory issues created by DRE activities and, help mobilize additional funding for the financing mechanism to make it a sustainable program. 4.3 Procurement issues: (a) A Public Procurement Reform Program was launched in Guinea in 1997. The purpose of the Program, supported by an IDF Grant, was to enable the Government of Guinea to reforn its legal, regulatory and institutional framework related to public procurement operations. It was completed in 2000 with mixed results. While initial measures of procurement reform were undertaken by the authorities, procurement remains weak and is a major stumbling block in project implementation and disbursements. The main causes were identified as (i) inconsistent implementation of procurement laws, rules and regulations; (ii) cumbersome procurement processes and clearances; and (iii) weak procurement capacity in implementing agencies; (b) To address these issues, a Country Procurement Assessment Review (CPAR) is presently under way and an initial IDA mission was conducted in October 2001. The review process is scheduled to be completed by June 2002. The CPAR's major focus will be: (i) a comprehensive analysis of public sector procurement structure; (ii) a general assessment of the risks associated with the procurement process; (iii) an Action Plan to strengthen public and private procurement processes; (iv) an Action Plan for the training of procurement staff of project implementing agencies and government units. 4.4 Financial management issues: -21 - Audits are required annually for the project, the special account and for FERD. These audits are financed under the project budget and submitted to the Steering Committee. A financial management system for BERD will be put in place by project effectiveness. 5. Environmental: Environmental Category: C (Not Required) 5.1 Summarize the steps undertaken for environmental assessment and LMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. The project will promote the use of renewable energies and efficient appliances wherever possible. Environmental impacts are expected to be minor due to the very small scale of projects, decentralization of the energy production and use of renewable energy sources. At the global level, these impacts should be positive, as such project will reduce carbon emissions. Simple guidelines will be prepared for the safe handling and disposal of batteries and waste engine oil. The project includes (i) training to ensure that waste oil and used batteries are appropriately disposed of in an environmentally sound manner; and (ii) the preparation of an expanded set of environmental guidelines for handling and disposal . 5.2 What are the main features of the EMP and are they adequate? Environmental guidelines will be incorporated into the Manual of Procedures of BERD. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: N/A 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? During project preparation MHE staff and ESMAP staff fully prepared six pilot projects in a participatory mode. The outcome was discussed at a national workshop. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project oil the environment? Do the indicators reflect the objectives and results of the EMP? A performance indicator is dedicated to environmental monitoring: C02 emissions reduced by about 30,000 tons by the end of the project, as a result of photovoltaic, and micro-hydro electricity use. 6. Social: 6.1 Summarize key social issues relevant to tbe project objectives, and specify the project's social development outcomes. Community-based provision of public services is relatively new in Guinea and may face several challenges in implementation. Private supply arrangements may encounter resistance from some sections of the population due to a preference for subsidized public supplies by the power company. Resistance could also come for some Government agencies favoring a centralized approach to electrification. An information dissemination program will be carried out by BERD at the village level across the country. The project outcome is expected to lead to more social inclusion and increased equity between urban and rural areas. The project will also lead to a strengthening of organizational capacity and social capital. 6.2 Participatory Approach: How are key stakeholders participating in the project? - 22 - Representatives of consumer groups/associations, NGOs, municipalities, equipment suppliers, other private firms, SOGEL, ENELGUI, have been consulted during the ESMAP preparatory activities. Two workshops were held in Conakry to present the ESMAP survey results, and to discuss the DRE program principles. Local consultants were involved throughout. It is expected that French Volunteers for Progress and other NGOs would be instrumental in developing subprojects by assisting PDESs in preparing their business plans. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? Consultation and collaboration of consurners, financial institutions, community organizations, and NGOs are an integral part of project implementation. Interaction between all stakeholders is vital if the project is to achieve its objectives. 6.4 What institutional ammngements have been provided to ensure the project achieves its social development outcomes? Decentralized rural electrification will involve rural communities and villages, financing institutions, representatives of consumer groups/associations, NGOs, municipalities, PDESs, other private firms, EDG, and the Government. The project makes possible relationships between these fornal and informal organizations at the local, regional and national levels to ensure access for and serve the needs of consumers in rural and peri-urban areas. 6.5 How will the project monitor performance in terms of social development outcomes? Some formal relationships already exist such as those between the local, regional and central governments, between rural communities and villages, NGOs and decentralized branches of central Ministries, etc. New relationships will be formed such as those between the private providers of DRE and rural and peri-urban consumers and between consumers and financing institutions, etc. The main indicator of social development outcome is the expansion of decentralized rural electrification schemes to as many rural communities and villages as possible. The proliferation of theses schemes should indicate that social cohesion is strong and inclusive and that Guinea is well on its way to achieving more equity between its urban and rural areas. 7. Safeguard Policies: 7.1 Do any of the following safeguard policies apply to the project? Policy Applicability Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) 0 Yes * No Natural Habitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes * No Forestry (OP 4.36, GP 4.36) 0 Yes * No Pest Management (OP 4.09) 0 Yes 0 No Cultural Property (OPN 11.03) 0 Yes * No Indigenous Peoples (OD 4.20) 0 Yes S No Involuntary Resettlement (OP/BP 4.12) 0 Yes * No Safety of Dams (OP 4.37, BP 4.37) 0 Yes * No Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes * No Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)* 0 Yesr No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. The project includes (i) training of PDESs to ensure that waste oil and used batteries are -23 - appropriately disposed of in an environmentally sound manner; and (ii) the preparation of an expanded set of environmental guidelines for handling and disposal. F. Sustainability and Risks 1. Sustainability: This project is a pilot project that will, if successfuL be replicated on a larger scale to increase access to electricity in rural and peri-urban. Its performance will be closely monitored. Measures that will ensure the project sustainability are: (a) valuable and cost-effective services provided to the population that otherwise would not have had access to electricity; (b) direct financial participation of all beneficiaries; (c) strict minimum technical, financial and systems management standards, ensuring that the systems are safe and regularly maintained by trained and experienced service providers; (d) inmplementation of a sound and transparent regulatory framework; and (e) financial incentives provided to service providers. Future cost reductions are also expected to play a role in enhancing sustainability: village hydro and solar home systems are expected to benefit from cost reductions due to economies of scale and technical progress. The creation of the decentralized electrification Steering Committee comprising private and public sector representatives, will also strengthen the institutional and financial sustainability of the proposed project. 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex l): INIsk Risk Rating P -Rls Mltlg---n -easure From Outputs to Objective The new regulatory framework is well M Build ownership of DRE by the population, accepted by the private sector and creates rural communities and political authorities. a good business climate for successful Active participation of local private sector. private investment for DRE projects. The LIL is followed up by a scaled up If the LIL is successful, it will be followed by a scaled up DRE program. Costs of decentralized electricity services M 1. Adaptation of the design of the financing and/or on no conventional grid connection mechanism by adjusting credit terns to the systems not affordable to the providers; beneficiaries. 2. GEF support; 3. Choose appropriate area. Local commercial banks fail to deliver S 1. Extensive consultations with interested local rural credit. banks; 2. Progressive commitment of the comrnercial bank, with risk assumed by GoG; 3. Close monitoring and annual assessment of bank activities. Lapses in Govemment commitment to the S 1. Built-in public-private partnership during project and slow adaptation of poor project implementation, families and communities to self-help 2. Internalize participation and consultation approach among key stake holders. -24 - Credit program fails due to shortcomings M 1. Ensure progressive commitment of local of local banks or due to high delinquency banks, and motivation rates. 2. Down payment by beneficiaries and by providers based on risk levels, 3. Ensure quality assessment by BLRD and bankable proposals with TA support. 4. Design credit features that would minimize this risk Project sustainablilty after closing ot M 1. Provide private sector tinancial incentives to Credit pursue these activities and mechanism to make BERD financially viable. 2. Ensure GoG continue political commitnient. Political opposition to: M 1. Information and communication campaigns (i) Opening up of public services to 2. Lobbying by local communities to change private/profit making entities. perceptions. (2) Abolishing uniform pricing of 3. GoG has indicated that DRE tariffs will be electricity. unregulated and based on delivery costs.*- From Components to Outputs Lack of transparency in selecting DRE M 1. Setting-up Steering Committee, BERD proposals. Insufficient local 2. Reliance on private sector and quality responsiveness/initiative. planning. 3. Large infomation of beneficiaries, other interested parties. Incentives are not sufficient for M Carefully selected first activities, studies carried development of DE village units by out in timely fashion, regulatory framework private operators conducive to carry out such activities. Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negiigible or Low Risk) 3. Possible Controversial Aspects: None G. Main Conditions 1. Effectiveness Condition (a) Recruitment of the remaining BERD staff (a procurement specialist, two technical experts and a financial specialist) having qualifications and experience satisfactory to IDA. (TORs are ready and a local consultant will be recruited to advertise and interview candidates. This procedure has already been used in the recruitment of the director of BERD and the accountant); -25- (b) Adoption of a manual of procedures by BERD, including administrative and operational aspects. The manual of procedures will detail the criteria, procedures and guidelines applicable to the provision of grants to buy down the high cost of renewable energy technologies. (A draft already exists); (c) Signing of a Subsidiary Agreement between 8iLRiuui ana uovemment unaer terms and conditions satisfactory to IDA; (d) Establishment of an adequate financial management system that is satisfactory to IDA which ensures proper monitoring and implementation of project activities. (The accountant has already been recruited. What remains is the acquisition of the financial software and the training of the accountant in its use); and (e) Appointment of the project auditor under terms and conditions satisfactory to IDA. (TORs already exists). 2. Other [classify according to covenant types used in the Legal Agreements.] None H. Readiness for Implementation El 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. LI 1. b) Not applicable. 1 2. The procurement documents for the first six months' activities are complete and ready for the start of project implementation; and a framework has been established for agreement on standard bidding documents that will be used for ongoing procurement throughout the life of LIL 0 3. The LIl's Implementation Plan has been appraised and found to be realistic and of satisfactory quality. 0 4. The following items are lacking and are discussed under loan conditions (Section G): The activities of the first six months wili include procurement activities and involve the recruitment of consultants for the recruitment of the personnel of BERD, the finalization of the manual of procedures of BERD, and the preparation of the bidding for the first DRE schemes. 1. Compliance with Bank Policies 1 1. This project complies with all applicable Bank policies. L1 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Nourea*elBo-uz& er M. anda Covindassamy Ollamadou Dia Team Leader Sector ManagerlDirector Country Manager/Director -26- Annex t: Project Design Summary GUINEA: Decentralized Rural ElectrIficatiorn Project Key Performance Data Collection Strategy Hierarchy of Objectives Indicators Critical Assumptions Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) 1. To foster rapid, broad based Continuing Bank dialogue on 1. 1. Lack of commitment and private sector-led growth power sector restructuring from GoG to attract local and increase the access to private sector financing electricity in rural areas in an economically and environmentally sound manner with GEF support. 2. Promote community based 1. Improved household 1.2. Lack of interest from self-help in the areas of social conditions due to provision of villages and/or private sector. and economic infrastructure. decentralized electricity. 3. Promote the development 2. The financing mechanism 1.3. Political, social and of a rural private sector. is sustainable. economic stability. Follow-on Development Objective: Scaling up of DRE activities AGER created AGER reporting -27 - GEF Operational Program: Promote the adoption of 1.1 Increased share of BERD reporting Demand for all DRE options Renewable Energy technology renewable energy technology can be generated at the village by removing barriers and in electricity generation. level. mitigate C02 emissions 1.2 Avoided C02 emissions: target >30 kt C02 by the end of the project. Project Development Outcome I Impact Project reports: (from Objective to Goal) Objective: Indicators: The project objective is test (a) whether the institutions DRE financing mechanism Firmly established rural institutional, financial and and regulations put in place ainual reports, electricity framework under delivery mechanisms to have worked reasonably well Steering Committee annLal appropriate standards, norms, promote better access to and contributed to the reports, and tariffs. electricity in rural and achievement of project Bank supervision missions peri-urban areas. objectives; (b) individual loan Special studies Sustained williniginess of stake collection rates, as a measure holders to be involved in of the extent to which the financing and in managing project has been successful in electrification schemes. establishing a sustainable delivery mechanism, do not Government continues its fall below 75 % at the end of support to the financing the project.(c) the mechanism. decentralized electrification financing mechanism (FERD) is operational and has a sustainable source of government financing and finanicial support from donors; and (d) The necessary private sector financing has been mobilized to provide electricity to some 20,000 households by the end of the project. Global Objective: -28 - Key Performance Data Collection Strategy Hierarchy of Objectives Indicators Critical Assumptions Output from each Output Indicators: Project reports: (from Outputs to Objective) Component: A financing mechanism for 1.1. A commercial banik 1. IBERD Progress reports The new regulatory the PDES at the community manages on a sustainable 1.2 Commercial bank framework is well accepted by level commercial basis the long disbursement reports, the private sector and creates term DRE credits and the 1.3 Evaluation reports a good business climate for DRE grant facility. successful private investment 1.2. Loan collection rates do for DRE projects. not faHl below 75% by the end of the project. Sustainable replicable 2.1. At least 10 local 2.1. BERD activity reports, The LIL is followed up by a schemes for the provision of consulting firms or NGOs and 2.2. Commercial bank scaled up DRE Program electricity services at 20 providers of electiicity disbursement reports, community level services have received 2.3. Periodic evaluation training. reports. 2.2. Some 20,000 households 2.4. Final Evaluation report. in more than 75 villages have access to DRE at the end of the project. The new regulatory 3.1. Feedback from PDES Costs of decentralized framework for the 3.2. BERD Progress reports. electricity seivices and/or on decentralized electrificationi no conventional grid sub-sector is in place coniection systems not affordable to the beneficiaries. A learning and evaluation 3.1. Independent consultants MHE reports. Local commercial banks fail system is established to draw have, by the end of the first to deliver rural credit lessons from the project year developed inidicators to measure; (i) cost-effectiveness and technical performance of BERD and FERD; (ii) technical and economical efficiency and profitability of the tested DRE schemes; (iii) sustainability of the DRE rmancing mechanism, and (iv) effectiveness of project and private sector involvement to improve access of the poor to electricity services. Political and economic instability Lapses in Govemnmeit commitment to the project and slow adaptation of poor families and communities to self-help approach Credit program fails due to shortcomings of local banks or due to high delinquency rates. -29 - Project sustainability after closing of Credit Political opposition to: (i) Opening up of public services to private/profit makiig entities. (2) Abolishing uniform I_________I________ I___ ________________________ pricing of electricity. - 30 - Key Perfrmance Data Collection Strategy Hierarchy of Objectives Indicators Critical Assumptions Project Components I Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) 1. Capacitv Buildini: $2.5m I. BERD Progress reports Lack of transparency in technical assistance to and disbursement reports selecting DRE proposals. promote and evaluate DRE Insufficient local proposals, monitoring and responsiveness/initiative. evaluation of the activities. Assistance to BERD for dissemination/replication. Training ofPDES staff. Traininig to ensure that waste oil and used batteries are appropriately disposed of in an environmentally sound manner and preparation of an expanded set of environmental guidelines for handling and disposal . 2. Financina meehanism and $12.5 m 2.1. BERD Progress reports 2.1. Incentives are sufficient Implementation of the DRE for development of DRE Program. Technical and village units by private financial assistance to operators implement the five- year DE program. 3. Proiect Coordination and $ 2.Om 3.1. Financial audit reports Manaeement: The project will 3.2. Intemal evaluation support and strengthen the reports. operation and capacity of 3.3. Independent evaluation BERD, to coordinate, missions reports supervise and monitor the execution of the project througl the provision of training of its personnel, studies, technical advisory anid auditing services, and the acquisition of vehicles and equipment. - 31 - Annex 2: Detailed Project Description GUINEA: Decentralized Rural Electrification Project Objectives The Project supports the Government in implementing its strategy for increasing access to electricity in rural and peri-urban areas. In order to achieve this through a maximum of private sector involvement, the project intends to create a technical and financial capacity to develop decentralized rural electrification projects at the village level. In addition, the project's global environmental objectives are to remove barriers to application, implementation and dissemination of renewable energy technologies (RETs), and to reduce greenhouse gas (GHG) emissions. To this end RETs will be promoted. By Component: Project Component I - US$2.50 million Capacity BuildinM. Technical assistance will be provided to the "Bureau d'Electrification Rurale Decentraliske" (BERD) in the monitoring and evaluation and, dissemination and replication of activities. Private providers will be assisted in the identification and setting up of electricity service delivery in rural areas under concession arrangements and trained in installation and maintenance of equipment. Village associations will be encouraged to organize service delivery through an operator. Over the duration of the project, the technical assistance will help BERD define priority areas, evaluate DRE proposals, coordinate, supervise and monitor the execution of the various DRE projects. The aim of the DRE program is to supply electricity services to some 20,000 households in more than 75 villages through photovoltaic, pico-hydro, and diesel (or hybrid) systems. These systems will be paid for by the beneficiaries through a financing mechanism that will managed by a local commercial bank (BICIGUI). Environmental benefits will result from the use of renewable energy technologies. Technical and financial capacity needs to be created to develop village level electrification projects. Some technical capacity, mainly in urban areas, is available that need to be developed and redirected to start developing rural and peri-urban decentralized electrification projects. It is expected that this will take several years before sufficient professional operators exist that can continue to provide and expand rural electricity services without Project assistance. The same holds for financial services. Although financial services are available in urban areas, there is limited experience in rural areas. Project Component 2, US$12.50 million Financine Mechanism and ImDlementation of the DRE Prosram. A Fonds d 'Electrification Rurale Decentralisee (FERD) will be created to respond to the lack of long-term credit and the high up-front cost of rural electrification systems (e.g. renewable energy systems). -32 - The Fund resources would come from the general budget, bilateral/multilateral donors, and at a later date, with improvements and the privatization of the power sector, from a kWh levy. The funds of FERD will be used for three general purposes: (a) to cover the operational cost of managing FERD, which is composed of two items (i) the annual operating cost of BERD; and (ii) the annual cost of the contract with the auditors; (b) to provide loans to promoters of RE projects approved by the Steering Conmmittee; and (c) to provide grants to promoters of RE projects approved by the Steering Committee. The financing plan of an approved project would be constituted, on average, by 50% grant, 25% loan and 25% equity. The grant element will depend on the technology, power and services delivered, geographical setting, the quality of the borrower, etc. As part of its operations, BERD will help fund the feasibility study of PDESs projects. To show its commitment, the PDES will pay a retainer in a bank account at BICIGUI that will go toward its contribution to the project, if the project is accepted. If the project is rejected, the full amount deposited is reimbursed. The eligibility criteria will be the financial, technical, and managerial feasibility of the proposed PDES project. A Fonds d 'Electrification Rurale Dicentralis&e (FERD) will be put in place to respond to the lack of long-term credit and the high up-front cost of renewable energy systems. Eligible providers of decentralized electricity services (PDESs) will have access to: (a) loans which would facilitate access to capital to a sufficiently large number of PDESs and thus promote competition and emulation in the sector; and (b) grants: The grant is variable and will depend on the technology, power delivered, geographical setting, the quality of the borrower, etc. Other criteria may be added and/or the current ones modified or changed by BERD. The eligibility criteria are defined in the manual of procedures of BERD. 1. The financing mechanism will be guided by the following basic principles: (a) foreign exchange risk of funds on-lent to the private commercial bank is supported by the government. In compensation for the risk taken, the govemment will add about 4 to 5% to the IDA rate and making sure that: i) the commercial bank has a margin that would keep it engaged in decentralized rural electrification; and ii) the lending rate to the provider of decentralized electricity services (PDES) is attractive; (b) promoting the economic viability of DRE operations which will be financed by a mix of loans and subsidies; (c) bringing the private commercial bank to gradually increase its financial involvement as the project progresses; and (d) follow the rules and procedures of the commercial bank to make the project sustainable and to avoid distorting the financial market. 2. The resources of the financing mechanisim could be constituted in part by funds deposited - 33 - by the government of Guinea at BICIGUI. The funds would be allocated to loans and grants and released according to the project forecasted needs. Funds not yet disbursed by the commercial bank would be remunerated at the savings rate. 3. The role of the commercial bank: The commercial bank will manage the loans and grants funds under terms and conditions defined under contract with BERD. The bank will use its own criteria for granting a loan and therefore will be solely responsible for the loan decision on projects approved by BERD. Project Component 3 - USS 2.00 million Proiect Coordination and Management. The project will support and strengthen the operation and the capacity of BERD, to coordinate, supervise and monitor the execution of the project through the provision of qualified staff, personnel training, and the acquisition of vehicles and equipment. Institutional Responsibilities Nominates the members of (he Board Ministry of Appoints Director of the Bureau d'Electrification Rurale Decentralisee (BERD) Energy Approves the RE Strategy & annual status report for presentation to Cabinet and Parliament the auditor for use of FERD funds A%vardv licenses to operators BERD Tasks Procedures for: - Evaluation of projects and processing of applications for DRE-fundiiig - Forms for Project Presentation & Funding Application documents - Tendering of programs and consulting jobs with outside suppliers & contracting - Approves business plans for proposed subprojects - Grants allocation - FERD oversight Identification and supervision of DRE activities Training of stake holders in development of business plans and projects _________ _______ Processes DRE-funding applications and send them to BICIGUI Provides information to and collaborates closely with the private sector, RE businesses and with provincial and local authorities Prepares and publicizes RE database on projects, costs and socioeconomic conditionls Answers requests from potential investors and public for information on RE project issues Organizes RE awareness campaigns, collaborating with other stake holders (NGOs, etc.) Organizes outreach activities to get feedback from niral popilation, collaborating with civil society and others ___________ _________ Provides RE regulatory advice to the Ministry of Energy Monitors implementation progress of funded projects and prepares progress reports -34 - . ___ _ .Conducts monitoring & evaluation of RE program progress and impact. traiiing to ensure that waste oil and used batteries are appropriately disposed of in an environmentally sounid manner and preparation of an expanded set of environmental guidelines for handling and disposal . BERD Director Contracts FERD Auditor Supervises BERD operation FERD operation Prepares draft for Minister's annual report on status of RE planu fulfilment Prepares annmal budget proposals for use of FERD funds for Steering Committee approval Steering Division of FERD funds among operation, investmnent grants. programs Committee Eligibility Criteria for grant support and fixes annual grant rates Approves annual budget proposals for use of FERD funds Annual operating budget and aniual work program of BERD I_______ ___ Draft RE Strategies & Policies for submission to the Minister of Energy Auditor Supervises rhe use and administration of FERD and prepares annual audit reports - 35 - Annex 3: Estimated Project Costs GUINEA: Decentralized Rural Electriflcation Project . . .. : Jeet::Cost By .˘ponZ ...... .. ... ... . . . ..L c Fo... ; :i Total Capacity Building 0.20 2.00 2.20 FERD 0.50 10.80 11.30 Project coordination and management 0.10 1.45 1.55 PPF 0.00 0.15 0.15 Total Baseline Cost 0.80 14.40 15.20 Physical Contingencies 0.20 0.60. 0.80 Price Contingencies . 0.35 0.65 1.00 Total Project Costsl 1.35 15.65 17.00 Total Financing Required 1.35 15.65 17.00 .:; .''.... .. ...'.. Si.,.. S" ' ' . : . ..... e y . : : S .. on ionUS $ ,m;l Goods 0.50 11.30 11.80 Works 0.44 0.84 1.28 Consultants services, studies and training 0.41 3.51' 3.92 .__ _ _ _ __ _0.00 Total Project Costs 1.35 15.65 17.00 Total Financing Required 1.35 15.65 17.00 tdentifiabJe taxes anid duties amO (tUSSat) and the total project cost. net of taxes. is 5 (IJS$ni). nlhcrtbre, the projcst cost sharitig ratio is 100% of total project cost net of taxes. -36 - Annex 4 GUINEA: Decentralized Rural Electrification Project. Incremental Costs and Global Environmental Benefits Broad development goals and baseline Development Goals The proposed activities are embedded in the Guinea - Policy Macroeconomic Framework Paper (1998-2000) and will support the govemment strategy to promote access to electricity especially in remote/rural areas by encouraging private entrepreneurs in the provision of economic village infrastructures (Decentralized Rural Electrification CGoG policy letter, February 1998). The specific project objectives include promoting the development of clean, renewable energy sources. Baseline There is a very low rate of rural electrification in Guinea (about 1%) with most rural households meeting their lighting and small power needs with kerosene and dry cell batteries. Rural electrification has not been successful in Guinea for a number of reasons, principally the low density of rural population which results in an extremely high cost for grid extension, high consumer connection costs, and a lack of investment capital to expand distribution systems. According to ESMAP- GoG survey results, kerosene represented the primary source of lighting in rural areas with an average household expenditure between 6 and 7 US$ per month. The dry cell batteries are the second source of lighting (flashlight) and the only one for radio, with an average household expenditure between 4 and 5 US$ per month. Guinean households have an ability to pay about US$ 10/month for a sustainable access to electricity based upon current expenditures on modem forms of energy including SHS and pico-hydro. Thus there is good evidence to suggest that the potential for decentralized electrification is high. Thus, the baseline scenario is that these households/conmmunities will continue to rely on fossil fuel for their basic electricity needs. ENVIRONMENTAL POLICY AND RURAL ELECTRIFICATION Govemment is pursuing an overall goal of promoting rural electrification through private entrepreneurs. The Government, through this project, seeks to increase rural access to electricity by providing an environmentally clean source of energy by involving the business community that is now developing decentralized energy options with SHS. There are some SHS available within the current market though they are relatively costly as compared to some other countries, and reflect the fact that not many systems are in use resulting -37 - in high unit costs. Countries with established and competitive markets such as the Dominican Republic or Sri-Lanka have much lower systenm costs. Although the SHS is likely to be best option to meet the needs of households not already connected to the grid, most cannot afford the high start-up costs of such systems. ESMAP results show that these households are willing to spend the same proportion of their incomes (and even more) on better energy services, which improves their quality of life or enables them to become more productive. But they can only do so if they receive credit and are allowed to pay back the costs in small monthly installments over many years. The problem is that these potential customers often cannot obtain the necessary credit and there is no technical support available locally making it difficult for them to obtain better lighting. Global Environment Objectives C02 Abatement The global environment objective is to mitigate carbon emissions resulting from the use of kerosene for lighting by rural households in Guinea. Total C02 emissions are expected to be reduced by about 30,000 tons by the end of the project and by about 100,000 tons over the economic life of the project. This mitigation is the rationale for the GEF grant and indicates the international community's WTP for reduced C02 emissions. The project supports the GEF climate change Operational Program #6 aimed at promoting the adoption of renewable energy by removing barriers and reducing implementation costs. By making it possible for private entrepreneurs to invest and manage village level electricity services, the project will open the way to a fully commercially based decentralized electrification. BASELINE PROGRAM The current baseline is for continued use of kerosene lanterns and disposable batteries to meet the lighting needs of the rural population. All rural consumers would continue to use these two options to meet their primary lighting needs. Despite the existent of some marketing of SHSs, they cannot not successfully be introduced into rural areas due to the lack of sufficient financing and scale to facilitate a successful penetration into the targeted rural markets. GEF Alternative The GEF alternative to the baseline scenario is the provision of "electricity services" to about 20,000 households over a five-year period through the promotion of at least 5,000 SHS in 50 villages and 80 pico-hydro associated with low-cost local grids. This objective will be reached through the creation of specific technical (BERD) and financial (FERD) institutional supports which will be to providers of decentralized electrification services (PDESs) benefit. To success in this main objective, the GEF alternative will also include capacity building, markets development activities, and sub-sector policy reform which all are necessary to remove the identified barriers. The role of the GEF funding would be to meet the incremental costs of supplying renewable - 38 - energy rather than the baseline equipment and support for the market development activities. Scope of the analysis There are two sets of project benefits, those that accrue directly to the households and those which accrue to the global environment and both of these are considered in the analysis. The analysis is made from the point of view of the country and the beneficiary households. The point of view of the concessionaire is not covered in the scope of the analysis as the nature of the concession has yet to be determined. Direct benefits to households Households benefit in numerous ways, many of which are difficult to quantify. Generally, however, the following benefits result from the availability of electricity in the home: (a) Access to electricity allows the use of radio and television, connecting individuals with the social and economic mainstream of Guinea; (b) Improvements in lighting quality and quantity extend the working day and permit the possibility of income generating activities after dark; (c) Improvements in lighting quality and quantity lead to better conditions under which children are able to read and study. There is a long-term positive effect on children education and learning; and (d) Reduction of indoor pollution contributing to imnproved health. The benefits to households can be measured by their willingness to pay (WTP) for the imnproved electricity service. Deriving a figure for households' WTP is complex since it is the sum of the actual payments made for the SHS or pico-hydro systems by the household plus the consumer surplus. While actual payments can be determined, it is not possible to measure the consumer surplus. Hence the project benefits will be somewhat understated. Direct Benefits to the Global Environment Global environment benefits accrue from C02 emissions that are avoided when kerosene is replaced by renewable energy. The mitigation is the rationale for the GEF grant and indicates the international community's WTP for avoided C02 emissions. The C02 emissions resulting from the manufacture, transport, and erection of the equipment were not considered. The overall avoided C02 emissions are estimated at about 30,000 tons by the end of the project and by about 100,000 tons over the economic life of the project. Mitigation of other pollutants, such as S02 and NOx, were not evaluated. BASELINE AND GEF COSTS - 39 - Baseline Costs Current costs associated with the delivery of energy services to rural populations is based upon continued use of kerosene lanterns and disposable batteries by rural communities. It is assumed that project benefits of electrification is equivalent to the avoided baseline costs. WTP was not used because of a lack of accurate data. For small consumers, the first cost associated with the purchase of two kerosene lanterns is $24, total consumption of about 88 liters annually and a net present value of operating costs of about $370 over a fifteen year equipment life. The levelized cost is about $5/month. Energy output is equivalent to a 20 watt SHS. Medium consumers will use both lantems and disposable batteries. The first cost associated with the purchase of three kerosene lanterns is $36, total consumption of about 135 liters annually and a net present value of operating costs of about $743 over a fifteen year equipment life. Disposable dry cell battery use is about $28/year. The level ized cost is about $10/month. Energy output is equivalent to a 20 watt SHS. Rural residents without access to decentralize energy grids, (GEF Large consumers - Pico-hydro alternative), will still use both lanterns and disposable batteries. The average energy use of these consumers is about 40 watt with about 200 consumers per decentralized energy system. The first cost associated with an equivalent amount of energy (40 watts) is the purchase of three kerosene lanterns is $36, total consumption of about 135 liters annually and a net present value of operating costs of about $743 over a fifteen year equipment life. Disposable dry cell battery use is about $28/year. Total system cost for the base case altemative of kerosene lanterns and batteries for 200 households is $221,027. The levelized cost is about $2,704/month. Energy output is equivalent to a 10 kW pico-hydro/diesel system with a thirty year life. GEF Costs The additional cost of the GEF Alternative scenario for the renewable energy technology dissemination are estimated at US$ 2,067,355 as detailed below: Renewable energy activities US$ TA for BERD 500,000 Financing mechanism for SHS buyers and Providers of 1,567,355 Decentralized Electrification Services Total 2,067,355 Baseline and GEF Alternative Uses and Costs Compared -40 - Renewable energy solutions are more expensive than the baseline solutions and their costs are unlikely to decrease until local capacity increases and economies of scale lower the price as the market grows. A pilot program of innovative decentralized electrification schemes can help support private entrepreneurs to invest in this sector. The improved service provided by PV in comparison with kerosene and gas can be expected to increase willingness to pay of at least some buyers. Current use of energy equipment is given below. Based on ESMAP survey data, the incremental cost of PV systems for households, as compared to baseline solutions, reveals a 15-year life cost of US$ 245 for the 20 Wp systems, a cost of US$ 427 for the 50 Wp systems, and a cost of US$ 10.567 for the pico-hydro. The Table below provides a summary of incremental cost per unit Incremental Cost per System (US$) Incr.Cost/Unit Incremental Cost/Wp 2OWp 245 12.25 5OWp 427 8.54 1OkW Pico-hydro 10,567 1.06 Incremental cost was calculated using the following baseline assumptions as compared to the GEF option, as noted in the Table below. Household type Baseline Provision GEF Provision l Light Electricity Small consumer 2 kerosene wick lamps 2OWp SI-S Medium consumer 3 kerosene wick lamps 8 R20 batteries/month 5OWp SHS Large consumer/ Lighting for 200 Electricity for 200 1 OkW Pico-hydro/diesel Mini-grid families families (or hybrid) (3 kerosene wick (8 R20 batteries/month (200 families) lamps per family) -per family) The concessionaire/DRE provider witl be given latitude to meet the demands of the market in terms of system type and size. It is difficult to make exact comparisons between the light provided by a kerosene or LPG lamp and that from a fluorescent bulb as may be used in an SHS because quality of light and convenience are not taken into account. Incremental costs have been based on estimated prices of equipment a concessionaire might be expected to pay for equipment, and not current prices which are significantly higher because such equipment that is bought privately tends to be one-off purchases. Levelized Monthly Cost (LMC) is used for comparison with existing levels of payment. -41 - Investment costs are expressed as sum of the up-front cost of the system and the present value of the running costs. A discount rate of 12% and a lifetime of 15 years is used. System LMC LMC of baseline NPV, Lifecycle Cost, NPV, Lifecycle ($) ($) GEF Cost, Base 2OWp SHS 7.80 4.80 639 394 5OWp SHS 15.10 9.90 1,234 807 lOkW Pico-hydro 2,834 2,704 231,594 221,027 Incremental costs The incremental costs of each system can be calculated from the information in the table above. The table below presents the incremental cost and the expected rates of deployment for each type of system. System Annual Deployment, Year Incremental 1 2 3 4 5 Cost(US$) 2OWp SHS 200 400 600 600 600 245 5OWp SHS 200 400 600 600 800 427 lOkW 8 12 16 20 24 10,567 Pico-hydro/diesel I I The project incremental cost is derived by using the information from the table above and modifying it as discussed below. GEE would pay incremental costs in the range 75-50%. IDA would help with the remaining incremental costs for the first two years. Small Consumers. These consumers will typically wish to acquire systems of 2OWp in size. The system carries a significant incremental cost at the moment because of the weakness of the market. It is expected that over the coming years, market growth will bring about a significant reduction in system cost and hence incremental cost. Reductions in system cost of the range of 10-20% can be expected over the lifetime of the project, which would bring them to the same order as those in other countries. It is thus proposed that a 'first cost grant' is used, payable to the concessionaire to absorb the incremental cost in the initial years. The first cost grant would follow a schedule of reducing payments: -42 - 2OWp.System Year 1 Year 2 Year 3 Year 4 Year 5 ,($) ($) ($) ($) ($) First cost grant payable 184 184 123 123 123 Proportion of incremental cost (%) 75 75 50 50 50 The schedule outlined above anticipates costs being brought down to a level more comparable with those found in more mature markets. Medium and Large Consumers. Medium consumers are expected to acquire systems of 5OWp. The consumers who acquire the 5OWp system will have either kerosene, gas and batteries or a gasoline generator as the alternative. As with the 2OWp systems, reductions in system cost of the range of 10-20% can be expected over the lifetime of the project, which would bring them to the same order as those in other countries. To account for the existence of a lower cost option in the 2OWp system and to avoid the subsidy benefiting those who obtain a larger system (and who will tend to be better off) it is proposed that the first cost grant cover 75% of the incremental costs in years 1, declining thereafter as shown in the table. 5OWp System Year 1 Year 2 Year 3 Year 4 Year 5 ($) ($) ($) ($) ($) First cost grant payable 320 320 320 214 214 Proportion of incremental cost 75 75 75 50 50 Large consumers will be decentralized providers who will provide energy services through a 10 kW mini-grid to an average of about 200 rural households (5OWc demand/household). The grant will cover 75% of the incremental cost in the first year, falling to 50% by the fifth year. Technical Assistance and Start Up Costsfor BERD. Technical assistance to BERD to promote and evaluate of DRE proposals, monitoring and evaluation of DRE activities, dissemination/replication and staff training, training of PDESs staff and preparation of guidelines for the safe handling and disposal of batteries and waste engine oil, and other hazardous materials. TA is required over 2 years for about $500,000. The TA components are as follows: -43 - Lyear - Promote/evaluate DRE proposals $75,000 - Monitoring and Evaluation $50,000 - Dissemination and Staff training $40,000 - Training of PDESs $50,000 - Training and Environmental guidelines $35,000 Total $250,000 Total GEF grant is thus determined as follows: Item GEF grant ($) TA for BERD 500,000 2OWp SHS 366,765 5OWp SHS 682,818 Pico-hydro 517,771 Total 2,067,355 The GEF alternative to the baseline scenario is expanding new renewable technology, principally SHS and pico-hydro-generators associated wherever needed with low cost distribution grids and innovative tariff systems. Additional technical assistance (such as methodological and operational assistance, training and monitoring, independent evaluation, etc.), which would contribute to the removal of barriers resulting from inexperience with high penetration of such DE systems, is included in the GEF alternative. -44 - Incremental Cost Calculation Matrix Baseline GEF Incremental Alternative Savings Domestic Benefit Lighting and small power Lighting and other services needs provided by fossil provided by renewable fuels sources Global Environment Benefit 2000-2029 109,122 tons/C02 7,858 tons/C02 101,264tons/ 2000-2004 C02 29,858 tons/C02 Costs (US$): SHS 20 Wp $394 $639 $245 SHS 50 Wp $807 $1,234 $427 Pico-hydro grid $221,027 $231,594 $10,567 systems Market Development Activities Economic Rate of Return: The project's ERR is 7.75%. Process of Agreement The incremental cost parameters described here have been derived by Bank staff in consultation with the Govenment of Guinea. The information has been gained from market studies and modeling developed in the course of project preparation. -45 - Annex 5: Financial Summary GUINEA: Decentralized Rural Electrification Project Years Ending STAP Review and Responses Overall, STAP has fully endorsed the Project stating that it will not only bring rural energy services to an area where electrification is almost entirely absent ( 1 % rural service rate), but if properly implemented could build a new clean-energy infrastructure that could become self-sustaining. Furthermore, the potential to initiate in Guinea a rural energy sector dominated by decentralized energy service providers, as opposed to an unrealistic and cost-ineffective grid-extension program, makes this project doubly attractive. Against the backdrop of this endorsement, the STAP has raised a number issues, which are presented below along with the Bank's response. 1. The PCD identifies uncertainty over the Govemment commitment to the project to be a significant risk. This can not be overstated, and every effort needs to be made to secure this commitment. Response: In late 1999, The Power Sector Reform Workshop demonstrated the willingness and commitment of the Government to address the required reform issues head-on. There is no real uncertainty as the Government's responsibilities - for decentralized electrification - are simply to create the regulatory environment (a law was promulgated), to create the institutional environment (establish BERD and the Steering Committee which is now done), and to raise more bilateral financing when the decentralized electrification program shows progress. The commitment of the Government to decentralized electrification as part of its strategy to fight poverty is Teal. This is supported by the Tecently approved Country Assistance Strategy (CAS) Progress Report and the Structural Adjustment Credit (SAC IV). The Government has taken important steps to foster decentralized electrification by putting in place the institutional enviromnent (establish BERD and the Steering Commnittee for decentralized electrification), and committed to raise more bilateral financing when the decentralized electrification program shows progress. 2. Primary concerns in the successful implementation of this project focus on the available project and Government of Guinea resources to support decentralized concessionaires and to insure that they provide rural energy services beyond the ternination of the formal project. Response: The concern is valid and we fully agree with it. The project is designed as a Learning and Innovation Loan specifically with the intent of identifying approaches that would eventually make rural energy services financial self-sustaining, and -46 - measures that would be required to insure that decentralized concessionaires continue to provide such services. Key to project success and sustainability is the functioning of BERD. BERD acts as Project Implementation Unit on behalf of the Govermnent, and it is supposed to become a self-financing unit as early on as possible. BERD's base costs are supported by the project; once the increasing workload requires contracting more staff, this should be fully paid for by the beneficiaries. BERD is fully autonomous, and interference by third parties (government entities included) should be limited as financing decisions to implement sub-projects are made on a commercial basis: future providers of energy services need to obtain loans from the bank that manages DEF. BERD initially will bring together potential partners (providers, beneficiaries,etc). 3. A potential source of problem for the combination of sustained growth, access to new services across socioeconomic classes, and profitability of the DE p- is the exclusion ofthe new concessionaires from operating in the largest urban areas of the nation. A superior arrangement would be to permit concessionaire activity in these areas that are already served by the existing energy supply infrastructure. Response: The arrangement of allowing new concessionaires to operate in areas that are already served by the existing energy supply infrastructure is indeed a superior arrangement and the law allows for it, provided of course that the area sought has not already been awarded. Actual awards would therefore depend on the demand for such concessions and their availability. 4. The reliance on a single, purely local, financial institution such as BICIGUI to support DE effort seems unrealistic. Response: The comment is valid. However, as noted in the PCD, other avenues will also be explored including the prospects of involving NGOs. The suggestion to use the Solar Bank to become active in Guinea to develop the financing mechanisms should be kept in mind. Once the local bank has demonstrated that it is feasible to provide financing for DE activities and it is time to scale-up, the Solar Bank can play a useful role. 5. The PCD calls for the implementation of several pico-hydro projects to provide DE services. This is a logical resource to exploit, and pico-hydro technology has a good prospect for sustainable applications and commercialization in Guinea. The PCD, however, does not provide a sufficiently clear program to support commercial growth. Response: The lessons learned from this LIL will serve as the basis for developing a longer-term program of support not only for sustainable applications and commercialization of pico-hydro but also for other RETs. 6. The Guinea DEP project will offset some greenhouse gas emissions, to be sure. -47 - However, the greatest benefit of the project will through the provision of rural services to the initial households, and-ideally-through the growth of a rural Tenewable energy service market that his program may initiate. Response: We agree. However, the market will only grow if the barriers are removed and implementation costs reduced, which is the rationale for GEF involvement. 7. By a conservative estimate based on the photovoltaics-related total project costs.(S 1,000,00001/(80,000 tons, of C02) =$12.s/t cot. On a carbon only basis, (44/12)* 125/TC =$45.8/TC. This value slightly high compared to other carbon-offset opportunities; however, it is also perfectly respectable given the range of additional important social benefits from the program. Response: The comment is valid over the short tem. Once the barriers are removed, it would not be unreasonable to assume that over the longer-term the number of households using SHS will increase by multiples of what is envisaged under the project, with its attendant consequences for reductions in GHG emission and cost-effectiveness of the intervention. Operational Program Number 6 subsumes such a longer term perspective. The Incremental Cost Analysis was revisited to take into account the sustainability and market transformation issues (See Annex 4 for revised Analysis). This resulted in a considerably more favorable cost of C02 abatement in the short term. 8. lin many settings where new renewable energy technologies have been introduced into rural settings the overall consumption of the previous fuel (in this case dung, wood and charcoal) did not decrease at all. Response: SHS will displace kerosene, candles and batteries not dung, wood and charcoal. 9. To set the context of the cost/month of rural energy services (primarily kerosene), it would be useful to include the per capital income to put this value in comparison. Response: Agreed -48 - IMPLEMENTATION PERIOD l I Year 1 | Year 2 | Year 3 | Year 4 | Year 5 1 Year 6 1 Year 7 Total Financing Required Project Costs Investment Costs 1.3 3.5 5.1 5.2 0.0 0.0 Recurrent Costs 0.4 0.4 0.5 0.6 0.0 0.0 0.0 Total Project Costs 1.7 3.9 5.6 5.8 0.0 0.0 0.0 Total Financing 1.7 3.9 5.6 5.8 0.0 0.0 0.0 Financing IBRDIIDA 0.5 1.0 2.0 1.0 0.5 0.0 0.0 Government 0.2 0.2 0.3 0.4 0.0 0.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 0.0 0.0 GEF 0.6 0.8 0.4 0.2 0.0 0.0 Other 1.0 2.1 2.5 3.3 0.0 0.0 Total Project Financing 1.7 3.9 5.6 5.1 0.7 0.0 0.0 Main assumptions: -49 - Annex 6: Procurement and Disbursement Arrangements GUINEA: Decentralized Rural Electrification Project Procurement General I. A Public Procurement Reform Program was launched in Guinea in 1997. The purpose of the Program, supported by an IDF Grant, was to enable the Govemment of Guinea to reform its legal, regulatory and institutional framework related to public procurement operations. It was completed in 2000 with mixed results. While initial measures of procurement reform were undertaken by the authorities, procurement remains weak and is a major stumbling block in project implementation and disbursements. The main causes were identified as (i) inconsistent implementation of procurement laws, rules and regulations; (ii) cumbersome procurement processes and clearances; and (iii) weak procurement capacity in implementing agencies. 2. To address these issues, a Country Procurement Assessment Review (CPAR) is presently under way and an initial IDA mission was conducted in October 2001. The review process is scheduled to be completed by June 2002. The CPAR's major focus will be: (i) a comprehensive analysis of public sector procurement structure; (ii) a general assessment of the risks associated with the procurement process; (iii) an Action Plan to strengthen public and private procurement processes; (iv) an Action Plan for the training of procurement staff of project implementing agencies and govemment units. -50 - Procurement methods (Table A) Use of Bank Guidelines Civil works and goods 3. Procurement will take place in accordance with the Bank's Guidelines for procurement under IBRD Loans and IDA Credits (January 1995, lastly revised in January 1999). For International Competitive. Building (ICB), the Bank's Standard Bidding Documents are to be used as well as the Standard Pre qualification Document (where applicable) and the Standard Bid Evaluation Forms. If national bidding documents are used for National Competitive Bidding (NCB), these documents and Guinea's procurement laws and procedures are acceptable to the Bank and have been verified to assure economy, efficiency, transparency and fair participation. Such NCB procedures will ensure that (i) bids will be advertised in national newspapers with wide circulation; (ii) bid documents clearly explain the bid evaluation and award criteria; (iii) bidders are given adequate response time to prepare and submit bids (minimum 4 weeks); (iv) bids will be awarded to the lowest evaluated bidder and not arbitrarily; and (v) eligible bidders, including foreign bidders, will not be precluded from participating. Procurement carried out for community sub-projects would be carried out in accordance with paragraph 3.15 of the Guidelines (Community Participation in Procurement) and with the Bank's Guidelines for Simplijied Procurement and Di.sbursementfor Community-Bwaed lnvestnents (February 1998). These would be described in a specific chapter of the Project lmplementation Manual to be prepared for the management of community sub-projects 4. Aggregate values for NCB or other non-ICB procurement methods for goods and works as specified in this Annex and the Development Credit Agreement, are limitative and cannot be exceeded without the prior no objection of the Bank. The Procurement Unit within the "Bureau d'Electrification Rurale D6centralis6e" (BERD) will maintain a tracking system to monitor such procurement in order to alert the Bank in a timely manner when this may occur (the aggregate amounts are derived from the procurement plan which lists the estimated amounts of contracts for each procurement method). Consultant services 5. (a) Procurement will take place in accordance with the Bank's Guidelines for the Selection and Employment of Consultants by World Bank Borrowers (January 1997, lastly revised in January 1999); (b) The Bank's Standard Request for Proposals will be used and Forms of Contracts as needed (lump-sum, time-based, and/or simplified contracts for short -terrn assignments and individual consultants) as well as the Sample Form of Evaluation Report for the Selection of Consultants. Advertising 6. (a) A General Procurement Notice (GPN) will be prepared and issued upon Board approval in - 51 - the United Nations Development Business listing all goods and works contracts procured under 1CB and large contracts for consulting services estimated to cost US $100,000 equivalent or more to obtain expressions of interest and to draw up a pool of solid candidate firms from which to compile the short list;. (b) sufficient time (minimum of 30 days) before preparing the short list; and (c) the GPN will be updated annually for those contracts still to be let. 7. (a) The related pre qualification or bidding documents, as applicable, will not be released - or that the short list for consultant services will not be prepared - before eight weeks after the GPN has been published; (b) the GPN will be updated annually for those contracts still outstanding; (c) a GPN will also be issued in the national press or official gazette for contracts to be let under NCB; and (d) Specific Procurement Notices (SPNs) for goods and works will be advertised in the national press of wide selection, and internationally for large contracts (ICB); (e) sufficient time will be allowed to obtain the bid documents. Procurement CaDacitv 8. The "Bureau d'tlectrification Rurale Decentralisee" (BERD), was formally established by official decree in June 2001 and will be responsible for the supervision, administration, and monitoring of procurement under the project. The Director and a qualified accountant have already been appointed.and a qualified and experienced procurement specialist will be appointed as soon as possible but would be a condition of Credit Effectiveness. Although the BERD is a new entity, it can rely on accumulated experience on the part of the Government in implementing IDA financed projects and substantial knowledge in the Bank's procurement procedures. The. performance of BERD will be closely monitored during IDA supervision missions and a least a post review of 1 out of 10 contracts will be carried out to: (a) verify that the procurement and contracting procedures and processes followed for the projects were in accordance with the Development Credit Agreement (DCA); (b) review BERD capacity in handling procurement efficiently; and (c) identify improvements in the procurement process in the light of any unidentified deficiencies. All thresholds stated in this Annex will be reviewed by the Borrower and IDA on an annual basis and amendments to the DCA may be agreed upon based on performance. Manual of Procedures and Procurement Plan 9. The preparation of a Manual of Procedures was discussed during appraisal, to be reviewed at Negotiations and approved prior to Credit Effectiveness. Apart from incorporating relevant Bank/IDA procedures for procurement of goods and works and the selection of consultants it will also include simplified procedures and sample contracts for decentralized activities related to the electrification program at the community/village level. The Manual will also include a detailed Procurement Plan (PP) of goods and services for the anticipated number of years to complete the project. Particular emphasis should be placed on the first year of implementation listing target time periods for various procurement phases showing planned versus actual completion dates. The PP, a draft of which has already been prepared, will be updated at least annually and will serve as an important monitoring tool for supervision of the Project. The Project Implementation Manual will include a specific chapter for the management of community sub-projects. The -52 - chapter will be based on paragraph 3.15 'of the Guidelines (Community Participation in Procurement) and the Bank's Guidelinesfor Simplified Procurement and Disbursementfor Community-Based Investments (February l998. The PIM will be finalized as a condition of effectiveness. Civil Works: US$1.28 million 1 0. The total cost of civil works is estimated at US$1.28 million, of which IDA will finance US$0.28 million, the rest is financed by the private providers. It is estimated that US$0.4 million will procured through NCB procedures up to an aggregate amount of US$0.4 million. All'other civil works will be small civil works, estimated to cost US$ 50,000 or less per contract, up to an aggregate of US$ 880,000. These small works may be procured under lump-sum, fixed-price contracts awarded on the basis of quotations obtained from three qualified domestic contractors invited in writing to bid. The invitation shall include a detailed description of the works, including basic specifications, the required completion date, a basic form of agreement acceptable to IDA, and relevant drawings where applicable. The awards will be made to the contractors who offer the lowest price quotation for the required work, provided they demonstrate they have the experience and resources to complete the contract successfully. Goods and Eouiiment: US$11.80 million 1. The total cost for goods and equipment is estimated at US$11.80 million, of which IDA and GEF will finance US$4.22 million. Goods (consisting of electricity generating and its ancillary equipment) will be grouped, where feasible, into packages of US$ 100,000 or more and would be procured through ICB to obtain more favorable prices. CGoods estimated to cost US$ 50,000 or more but less than US$ 100,000 per contract, up to an aggregate of US$1.5 million, may be procured through NCB procedures. For goods and equipment estimated to cost US$ 5,000 but less than US$ 50,000 per contract and up to an aggregate of US$1.6 million may be procured through prudent national shopping for items available locally, or through international shopping for those goods not available on the national market, on the basis of quotations obtained from at least three qualified suppliers or through IAPSO (Inter-Agency Procurement Services Offices of the UNDP). Spare parts and minor off-the-shelf items of proprietary nature estimated to cost less than US$ 5,000 up to an aggregate of US$ 100,000, may be procured directly from manufacturers and authorized local distributors. Consultants' Services: US$3.92 million 12. The total cost for Consultants' services is estimnated at US$3.92 million, of which IDA and GEF will finance US$2.50 million. The services would be for: (i) studies, preparation of business plans, data collection, accounting systems, monitoring, audit and impact analysis; and (ii) long term technical assistance, short term consultancies on specific technical matters and training. Selection of consultants will be done through competition among qualified short-listed firms in which the selection will be based on Quality and Cost-Based Selection (QCBS) by evaluating the quality of the proposal before comparing the cost of the services to be provided. For Audits of standard nature, the Least Cost Selection (LCS) will be the most appropriate method, i.e., the - 53 - firm with the lowest price will be selected, provided its technical proposal received more than the minimum mark required. Contracts for consultant services carried out by firms and estimated at less than US$ 50,000 per contract up to an aggregate of US$0.8 million would be based on Consultants' Qualifications (CQ) taking into account the consultants' experience and competence relevant to the assignment. Services for specific interventions (such as, but not limited to the preparation of business plans, monitoring and evaluation) which can be delivered by Individual Consultants (IC) will be selected through comparison of qualifications against job description requirements among those expressing interest in the assignment or approached directly. 13. To ensure that priority is given to the identification of suitable and qualified national consultants, short-lists for contracts under US$ 50,000 equivalent may be comprised entirely of national consultants provided that a sufficient number of qualified individuals or firmns (at least three) are available at competitive costs. However, if foreign firms have expressed interest, they will not be excluded from consideration. The Standard request for Proposal (RFP) as developed by the Bank will be used for requesting proposals, and for selection and appointment of consulting firms. The Government will be briefed during negotiations about the new features of the Consultants Guidelines , in particular with regard to advertisement, public opening of financial proposals, and evaluation criteria 14. Grants to community-based sub-projects. The project will finance community-based sub-projects for a total estimated at US$1.5 million equivalent) in the form of grants. Financing will depend on applications received from communities and the types of activities to be financed and their procurement details will depend on the needs identified by the communities. Therefore, it not possible to detennine the exact mix of goods, small works, and services to be procured under these activities due to their demand-driven nature.. Procurement of items for the implementation of sub-projects would be carried out in accordance with simplified procurement procedures referred to in Section 3.15 of the Guidelines and in accordance with the Project Implementation Manual. The manual will contain a special chapter describing the procedures and tools in accordance with those found in the Bank's GuidelinesJbr Simplified Procurement and Disbursementfor Community-Based Investments (February 1998). The BERD will be responsible for ensuring compliance with these guidelines. Ex-post reviews of random sub-projects will be conducted periodically by the Bank and independent technical audits. - 54 - Table A: Project Costs by Procurement Arrangements (US$ million equivalent) , Procurement Method Expenditure Category ICB NCB Other' N.B.F. Total Cost 1. Works 0.00 0.40 0.88 0.00 1.28 (0.00) (0.28) (0.00) (0.00) (0.28) 2. Goods 0.40 3.00 1.60 6.80 11.80 (0.40) (2.50) (1.32) (0.00) (4.22) 3. Services 0.00 0.00 3.00 0.92 3.92 (0.00) (0.00) (2.50) (0.00) (2.50) 0.00 0.00 0.00 (0.00) (0.00) 0 0 (0.00) Total 0.40 3.40 5.48 7.72 17.00 (0.40) (2.78) (3.82) (0.00) (7.00) Figures in parenthesis are the amotints to be financed by the Bank Credit/Grant/Olher (Specify). All costs iiclude contingencies. ! Includes civil works and goods to be procured through national shopping, consulting services. services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing tlhe project, and (ii) re-lending project funds to local govemmment units. 3/Includes both IDA ($5million) and GEF funds ($2million) - 55 - Prior review thresholds (Table B) Prior review thresholds (Table B) 14. Requirements for IDA prior review take into account the lack of experience of the BERD, since it is a new institution created under the project. For Civil works (totaling US$1.28 million equivalent). Civil works contracts estimated to cost US $100,000 equivalent or more will be subject to IDA prior review. With respect to Goods (totaling US$10.8 million equivalent) all ICB contracts valued at US $100,000 equivalent or more will be subject to prior review as well as the first five contracts under NCB valued at more than US $50,000 but less than US $100,000 equivalent.For National shopping procedures for Goods valued above US $5,000 but less than US $50,000 equivalent, only the first two contracts will require prior review by IDA. For Consultant Services (totaling US$2.92 million equivalent), prior IDA review would be required for all Terms of Reference, irrespective of contract value. Contracts with Firms, estimated each above US $100,000 equivalent, the technical evaluation would be submitted to IDA for its review prior to the opening of the financial proposals. Contracts with Fimis estimated each below US $100,000 but above US $50,000 equivalent, although the two step evaluation process remains, IDA would review the results of the technical evaluation and financial proposals together. For Audits. Least Cost Selection (LCS) procedures apply whereby after the technical proposal has been evaluated, the technical evaluation would be submitted to IDA for its review prior to the opening of the financial proposals.For Contracts with Individual Consultants: the qualifications, experience, temis of reference and terms of employment shall be furnished to IDA for its review and approval prior to contract signature. Contracts for Individual Consultants estimated to cost US $10,000 equivalent or more will be subject to prior review. For contracts below US $10,000 equivalent, only the fist five contracts will need to be reviewed. Post Review Monitoring and evaluation of procurement performance at all levels (national and comnmunity) would be carried out for procurement under the prior review thresholds during IDA supervision missions and through annual ex-post procurement audits. At a minimum, I out of 10 contracts for goods managed by BERD will be subject to post review. Annual independent technical audits (ex-post procurement audits) would: (a) verify that the procurement and contracting procedures and processes followed for the projects were in accordance with the Development Credit Agreement (DCA); (b) verify technical compliance, physical completion and price competitiveness of each contract in the selected representative sample; (c) review and comment on contract administration and management issues as dealt with by BERD; (d) review capacity of BERD in handling procurement efficiently; and (e) identify improvements in the procurement process in light of any identified deficiencies. All thresholds stated in this section will be reviewed by the Borrower and IDA on an annual basis. Amendments may be agreed upon based on performance and actual values of procurement implemented. Amendments to the Development Credit -56 - Agreement may be proposed accordingly. Table B: Thresholds for Procurement Methods and Prior Review' Contract Value Contracts Subject to Threshold Procurement Prior Revlew Expenditure Category (US$ thousands) Method US$ million 1. Works 50 and above NCB Prior Review of all: 0.8 _______________ below 50 NS Post Review 2. Goods 100 and above ICB Prior Review of all: 1.5 above 50 and below 100 NCB Prior Review first 5 contracts: 0.2 Post Review of rest above 5 and below 50 NS Post Review Post review 3. Services All TORs or sole source contracts are subject to above I 0,000 Individual Consultants IDA prior review below 10,000 Individual Consultants Prior Review of all: 0.2 3.b. Firms Above 50,000 QCBS Above 50,000 QCBS Prior Review of All: 2.2 below 50,000 CQ Post review Audits LCS Prior Review of All: 0.3 4. Miscellaneous 5. Miscellaneous 6. Miscellaneous Total value of contracts subject to prior review: US$5,000,000 Overall Procurement Risk Assessment High Frequency of procurement supervision missions proposed: One eveiy 6 mondts (includes special procurement supervision for post-review/audits) on an annual basis. ..................................................... 'Thresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance. - 57 - Disbursement Allocation of creditigrantlother (specify) proceeds (Table C) The closing date of the proposed credit will be December 31, 2006. The proposed IDA credit would be disbursed against the categories shown in Table C. Disbursements will be made in accordance with procedures and policies outlined in the Bank's Disbursement Handbook. A special account for BERD covering four months of eligible expenditures will be established at a commercial bank acceptable to IDA. Half of the initial deposit will be made available to the special account upon credit effectiveness, and the remaining balance will be made available as needed. Replenishnients of the special account should be made every month or when needed and must be fully documented, except for operating costs and training expenditures and for contracts valued at less than (i) US $50,000 for consultants (finns); and (iv) US $30,000 for individual consultants. BERD will maintain all supporting documents in its office for review by visiting supervision missions and external auditors. IDA and GEF Financing (US$ million) IDA GEF Total Sub loans 1.5 1.5 Grants 1.0 1.5 2.5 Goods 0.25 0.25 Consultancy Services 1.2 0.25 1.45 Operating costs 0.4 0.4 PPF advance 0.15 0.15 Non allocated 0.5 0.25 0.75 Total 5 2 7 -58 - Table C: Allocation of CreditlGrantlOther (Specify) Proceeds Expenditure Category Amount in US$mHllon Financing Percentage Subloans and Grants 4.00 100% of amounts disbursed Goods 0.25 100% of foreign 80%/ of local Consultancy Services, audit, and l.45 80% training Operating costs 0.40. 80% Refunding of Project Preparation 0.15 100% Advance . Unallocated 0.75 Total Project Costs 7.00 Total 7.00 Use of statements of expenditures (SOEs): The project is expected to be completed over a four year period according to the categories shown in Table C above, and the Credit closing date would be six months after the 2006 year to allow payment of last invoices for contracts completed before the completion time. Government counterpart funds needed for each fiscal year to cover the share of recurrent costs not financed by IDA will be deposited by the Government in a Project Account on an annual basis. Use of Statement of Expenditures (SOEs). Disbursements for all expenditures would be made against full documentation, except for items of expenditures for: (a) contracts for consulting firms in an amount inferior to $100,000 equivalent, (b) contracts for individual consultants in an amount inferior to $50,000 equivalent, (c) contracts for works and goods, in an amount inferior to $100,000, and (d) grants for sub-projects and operating costs, which would be claimed on the basis of Statement of Expenditures (SOEs). All supporting documentation for SOEs would be retained at a suitable location at BERD, and readily accessible for review by periodic IDA supervision missions and extemal auditors. Special account: Special Account. To facilitate project implementation and reduce the volume of withdrawal applications, the BERD would open a Special Accounts in US dollars in a commercial bank on terms and conditions acceptable to IDA. The Special Account would finance all project expenditures. The authorized allocation would be 500,000 US dollars and would cover about six months of eligible expenditures. Upon credit effectiveness, IDA would deposit the amount of 250,000 US dollars into Special Account the Special Account representing fifty percent of the authorized allocation. The remaining balance would be made available when the aggregate amount of withdrawals from the credit account plus the total amount of all outstanding special commitments entered into by the Association shall be equal to or exceed the equivalent of 2000,000 US dollars for the Special - 59 - Account. It would be used for all payments inferior to twenty percent of the authorized allocation and replenishment applications would be submitted monthly. Further deposits by IDA into the Special Accounts would be made against withdrawal applications supported by appropriate documents. -60 - Annex 7: Project Processing Schedule GUINEA Decentralized Rural Electriflcation Project Project Schedule Planned Actual Time taken to prepare the project (months) 30 First Bank mission (identiflcation) 01/10/1997 Appraisal mission departure 02/01/2000 05/07/2000 Negotlatlons 02/28/2002 03/18/2002 Planned Date of Efrectiveness 08/31/2002 Prepared by: Willem Floor, Robert van der Plas, Noureddine Bouzaher Preparation assistance: Dawit Yohannes, Lu T. Ha Bank staff who worked on the project included: Name Speciality Noureddine Bouzaher Sr. Energy Economist Isabella Micali-Drossos Sr. Counsel Renee Desclaux Disbursement Officer Amadou Tidiane Toure Sr. Procurement Specialist Hassane Cisse Sr Counsel Hisham A. Abdo Kahin Consultant Willem Floor Sr. Energy Planner Serigne Omar Fye Sr. Environmental Specialist Irene Xenakis Operations Adviser Robert Van der Plas Energy Planner Philippe Durand Sr. Energy Specialist Lu T. Ha Language Team Assistant Rene Masse Rural Energy Specialist Bella Lelouma Diallo Financial Management Specialist Bhanoumatee Ayoung Sr. Procurement Specialist Dawit Yohannes Language Team Assistant Korotoumou Ouattara Financial Economist -61- Annex 8: Documents in the Project File* GUINEA: Decentralized Rural Electrification Project A. Project Implementation Plan Was discussed during appraisal and will be a condition for negotiations. B. Bank Staff Assessments CGuinea, Household Energy Strategy, ESMAP, 1994 C. Other D6finition et rnise en oeuvre d'un m6canisme financier durable, Horms, fevrier 2000; Decentralized Rural Electrification - institLtional and operational Scheme, Marge, February 1999; Electrification Rurale Decentralisee en Guinee, Avancement du progranmme MNRE - ESMAP, octobre 1998; Enquetes sur la demande solvable d'6lectrification rurale hors reseau, en Basse Guinee et en Moyenne Guinee, S.N.A.P.E. janvier 1998; Etude d'electrification rurale par centrale hydraulique et rnini-reseau de la sous-pr6fecture de Konkoure, APAVE, novembre 1997; Pico Hydro & Diesel Electrification of Konkoure-Medina, Harvey Associates, November 1997; Rapport synthese programme pico thermique (GECO), septembre 1997; Atelier electrification rurale decentralisee - document de travail, Direction Nationale de l'Energie, octobre 1997. *Including electronic files -62 - Annex 9: Statement of Loans and Credits GUINEA: Decentralized Rural Electrification Project Dference between expcted and actual OrIginl Arount In USS MIllona dIsbursements' PFrecl ID FY Purpose IBRO IDA SF GEF Cancel. Undisb. Og Frm Ravd P00106l 1993 AGR EXPORT PROMOTION 0,00 20.80 0.00 9.35 8.81 t38 P001101 1996 AGRIC SERVICES 0.00 36.00 0.00 5.91 1.75 0.00 P049718 2000 CAPACITY8UILDINGSO 0.00 19.00 0.00 18.88 0.00 000 P001087 1t99 EOUIrVANODCHOOLIM 0.o0 42.50D 0.00 18,98 14.64 0.00 PC01070 1994 HEALTH/NUT.SCTR. 0o00 1460 0.00 8.64 5.23 5.23 PC00090 ¶998 HIGHER EDUCATION MAN 0.00 8.80 0.00 2.04 3.29 2.85 Ps3D731 1998 MICROFINANCE 0.00 8.00 0.00 8.11 1.14 0.00 P001077 1098 MtN SECT INV PROMOT 0.00 12.20 0.t0 1.70 1.33 0.00 PO41568 1999 POPWREPROD HEALTH 0.00 11.30 0.00 9.83 -0.52 0.00 P057188 1t99 PRE-SRV TEACHER EOUC 0.00 410 0.00 2.43 1.00 0.00 P001075 ¶937 TWtOWXVERSUPPLY 00 26.00 0. 21.04 6.6 S 0.00 PD01074 1999 URBAN II 000 1800 0.00 16.90 1.21 0.00 P050732 1s99 VILLAGE COMMUNITY SUPPORT PROGRAM 0.00 22.00 0.00 20.67 ..A45 0.00 Total: 000 246.10 -00 1t39.84 44.00 10.44 - 63- GUINEA STATEMENT OF IFC's Held and Disbursed Portfolio In Millions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1988 Aurifere 0.00 0.00 4.59 0.00 0.00 0.00 4.59 0.00 1994 Cimenrs Ginee 0.30 0.00 0.00 0.00 0.30 0.00 0.00 0.00 1998 SEF Agro 0.13 0.0 0.00 0.00 0.13 o.00 0.00 0.00 1999 SEF Aex 1.17 0.00 0.00 0.00 1.17 0.00 0.00 0.00 1993:9R SGI-II 0.00 0.00 0.44 0.00 0.00 0.0O 0.44 0.o0 Total Portfoliwr 1.60 0.00 5.03 0.00 1.60 0.00 5.03 0.00 Approvals Pending Commitment FY Approval Conpany Loan Equity Quasi Partic Total Pending Commitment: 0.00 0.00 o.o0 0.00 -64 - Annex 10: Country at a Glance GUI NEA. Decentralized Rural Electrification Project PODVERTY and'SOCIALSub Guinea':.. Aherlan Ln aw .... O.v.iopmomt dimamnd' PoDUl'S1IhGrI. md-year (rnlJllila) . :7.4 659 2.489:. .:' Life expectancy 01N1 per capita (A/as mathort US$1. 450' 4800 . 420: Gm (A0shnilhoil: USS b/i ilmw) ~~~ ~~~~ ~~~~~~~~~~~34-: $13 1*3 A5vipreno PruweI growth,1994,00 Par i/lotion (56): : 3.~~~~~~~~~~~~~~~~~~:24 2.6 1. Labor lorce:t~~~~~~~~~~~~~~6) .: . ~~~~~~ 246 2. GNI ..Gross ....per primnary Most Moeni ~atimats tiatea year avaIlable. 1014.00)capita '.enrolimeni Poverty. (56ofpbpulatloh hafow natibonid poverty line):: 48.... Urban popWietion (6 oa fqf&i:popu1at!onj 30 .......34: 32_ Life asxsactancvyea birth beal#,) 44::: 47 59 Iinant mortagtVtyteer 1000 /Iveblflhi&) 9 9 77". Chiltd fl%dtimlllittlrl t16 ofrdh/fl?diundbo 5): Access to improved water soutrce itlttaracflliafJIOWetJgnaoe1,5+ U 76: 38 3 Groa r%mrvanvtt~rt 54 jqpp-~~ pyuelfp) 51.. 7 0"-~Guinea .Male.:e66 U OR ....02 .Low-Income gwu KEY ECOkOMIC RATIOS and LONG.-TERM tRENkDS .......... Economic retlic GOP (133$ b6ion).28..5 3. Gross domestic 6invetmen t/o 0p.V17,5::: -22.2' 22.1Tad Exriorts:of ...dodsidii sevcsGP2~ 30 9 1:4..4 259.9 rd .Gross domestiic savinns/sGDP.117.7 . ..17.5 te 'Gross naktional savinfittDP, 10 4 114. .14 1157". Cu.rreni"a"c"cousni bpl,ncelODP . I:U: 94 .-.2 ~ Dmsi aniresl p5ayrntnts/GDP ¶ 19.: 1.7 . .1 ~ ~Investment ~.:savings Tbt&idobtlGCP . .. ~~~~ ~ ~~~~~~~~~~~~~~~~~87.9 90.4:.t.: 1085 Total debt service/a ilo i .... .. . ..... .... . 10.8: 20.3.. 16. i Pretri valueo debt/tGOP . . . 68.2 : 76:1. ........ ... ~~~~~~~~~Indebtedness (aer a.n.l.ro.h 1880490 10190-00 1809 2800 .2000-04, GOP .. 4.3 ~~~ ~~~ ~~~~~~~~~~~~~~3.9 Guine3 GOP per ceo/ta : : 1.0 ~~~~ ~~~~ ~~~~~1.5 ..........Low-income group Expprt4Of odo4s.aOd seiveces.. 4.9 60 O . STRUCTURE of the ECONOMY (% of GDP) ~ ~~~~1980 1990 1999 2000 Growth of invastment and GDP(% Agriculture .. 23.8 24.3 23.7 I Industry . 33.3 37.9 36.6 '0 Manufacturing .. 4.6 4.2 4.1 Services .. 42.9 37.8 30.7 Private consumption .. 73.4 78,8 78.4 .6 ast 5 or so to 50 General government consumption .. 8.9 0.0 5.9 - 0 Imports of goods end services .. 30.6 26.1 29.4Gt "4' P (average annual gpo wife) ~~~~~1980-90 1998-60 1999 2000 Growth of exportsaend Imports 56 Agriculture .. 4.3 5.5 -2 6 Is- Industry .. 4.7 5.3 4.3 1s - Manufacturing . 4.1 6.6 70 lt.ni% Services .. 3.~ ~ ~~~~ ~~~~~~~~~~~~~~~~~6 2.9 34 Private consumption .. 3.5 1.7 3.68 Generai governmeni c-onsumptIon .. 4.7 3.3 3.6 .5 bOs 9 a Gross domestic investment .. 2.8 4.6 5.6 -~'Experts --"--tmports Imports of goods and services . 1.2 -0.5 9.0 Note: 2000 dais are preliminar estimates. *The disamondsashow tour key indicators in the countr lirn bold) compared with Its income-group) average. If date are missing, the diamond will be Incomplete. - 65 - Guinea PRICES and GOVERNMENT FINANCE DomestIc prIces ~~~1980 1990 1999 2000 Inflation (%) DomesU(c pHfces (S6 change) j Consumer prces 23.3 4.6 6.8 10 Implicit GDP deflator 23.9 3.3 10.1 Govemnment finance 5 < (% of GDP, Indudes current grants) o Currenlrevenue ,, 15.8 10.9 11.1 95 s9 97 98 98 9 Current budget balance 3.4 1.8 1.7 -GDP deflator -4-CPI Overall surplusidefcit -5.4 -5.6 TRADE (US$ millfons) 1980 1090 1999 2000 Export and Import levels (US$ mill.) Total exports (fob) 817 646 695 . oo Other metals 447 295 299 AlumInum 166 86 103 780 Manufactures Total imports (cifi). 72'3 582 555 90 Food .. 12 82 87 250 Fuel and energy .. 65 93 99 Capitaligoods .. 98 106 120 94 95 98 97 9 98 9 00 Export price index (1995=100) ,, 140 94 97 Import prire Index (1995=100) 92 88 96 aExports MImports Terms of trade (1995=100) 153 107 101 BALANCE ot PAYMENTS 1980 1990 1999 2000 Current account balance to GDP (%) (US$ millions) Exports of goods and services 553 829 759 808 0 imports of goods and services 481 891 924 917 Resource balance 72 462 -165 -109 2 Net current transfers -8 -53 -8 -10 Current aocount balance -32 -264 -257 -201 Flnancing items (net) 57 315 215 158 Changes In net reserves -25 -51 42 44 1e Memo: Reserves including gold (US$mlhons) 0 116 273 212 Conversion rate (DEC, locallUSS) 19.0 860.2 1,343.6 1,709.6 EXTERNAL DEBT and RESOURCE FLOWS 1980 1990 1999 2000 (US$ millions) ComposIiton of 2000 debt (US$ mill.) Total debt outstanding and disbursed 1,133 2.476 3,521 3,387 IBRD 55 28 0 0 | I IDA 32 392 1,014 982 0G33 F: 30 Total debtservice 109 169 128 132 b 982 IBRD 9 14 0 0 IDA 0 3 18 18 ComposItion of net resource flows Offcial grants 25 95 109 112 E: 129 Offilcalcreditors 1 119 30 2 C:13 Privale creditors 46 -19 -1 0 / Foreign direct invesitment 34 18 34 -33 Portfolio equity 0 0 .. .. D.32 Worid Sank program CommItments 17 174 61 0 A - ISRD E - Bilateral Disbursements 10 52 29 29 B - IDA D - Other mulblatersl F - Private Principalrepayments 3 13 10 11 |C-IMF G-Short-tem1 Netflows 7 39 19 18 Interest payments 6 5 8 7 Net transfers 1 35 11 11 Development Economics 9/21/01 - 66 - < S EiN E G A L A , 4 10° ' 8° ' -S-----17X2X-n as~~~~~~~~~ou Ke G U I N E A 12' ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~12'- |-t fI N M A I I | | 2 | | | | v ~~~~~~~~~~~~~~~~~~~~~~ngia MiN euEe_/ri0 Kal'i' Knkn 'k 0 _ MAURUANLA i + AEROPORTlNTERNAI/ONAL ; H s &~~~~~~~~~~~~~ian akoo mL NEA _ -._Ft MA OI A DMINISTRATIVE REGION BOUNARIES RLol \a . [,< _- A t._ CAP~~~~~~~~~LIITES DES MINISTERES RESIDENTS j, - W > = G UtN E A $ r§BFUAWN - - - P~~INTR NAE TIONAL8 BUNDARIES ' Z X3\ C T SIERR NE7'\ DVCOTRE J ° FRONTIERES INTEER°NATrIDONRAESE5Ar)@A- 3i E shiow on this map do not imply, on the port of The World Bank Group, * IA \ ToA Ajann 8 e( an judgmento on tuhe legalstats . of any territory, or any endorsement DI,in nfschbudais IMAGING Report No.: 24040 GUI Type: PAD